THE  PUBLIC,  THE  INVESTOR 

AND  THE  RAILROADS 

OF  NEW  ENGLAND 


AN  UNPREJUDICED  ANALYSIS  OF  THE  AFFAIRS 

OF  THE  BOSTON  &  MAINE  AND  NEW  YORK, 

NEW  HAVEN  &  HARTFORD  RAILROADS 

AND 

AN  APPEAL  FOR  JUSTICE  AND  SOUND  FINANCE 


By 
BURTON  L.  READ 


THE  FINANCIAL  PUBLISHING  COMPANY 

7  HANCOCK  AVENUE 

BOSTON,  MASS. 


THE  PUBLIC,  THE  INVESTOR 

AND  THE  RAILROADS 

OF  NEW  ENGLAND 


AN  UNPREJUDICED  ANALYSIS  OF  THE  AFFAIRS 

OF  THE  BOSTON  &  MAINE  AND  NEW  YORK, 

NEW  HAVEN  &  HARTFORD  RAILROADS 

AND 

AN  APPEAL  FOR  JUSTICE  AND  SOUND  FINANCE 


By 

BURTON  L.  READ 


THE  FINANCIAL  PUBLISHING  COMPANY 

7  HANCOCK  AVENUE 

BOSTON,  MASS. 


COPYRIGHT,  1913 

THE  FINANCIAL  PUBLISHING  Co. 
7  HANCOCK  AVE.,  BOSTON 


ALL  RIGHTS  RESERVED 


CONTENTS 


Page 

A  WORD  ABOUT  FAIR  PLAY 5 

The  Case  at  issue 6 

Certain   Proposals 7 

WHAT    is    WRONG  ? 8 

New  England  as  a  Railway  Territory 8 

Short-sighted  Policies 9 

Growing   Demands   of   Business 9 

The  Investment  Phase  of  the  Case 10 

New   England    Railroads    a    Decade    Back 10 

The  Change  to  Modern  Methods n 

THE  FINANCIAL  POSITION  OF  THE  BOSTON  &  MAINE  RAILROAD    .  12 

Recent    Reverses 13 

Reassuring    Factors 14 

Improvements    in    the    Property 15 

Stockholders'  Money  in  Betterments 16 

Increase  in  Maintenance  Expenditure 17 

The  Leased  Lines 18 

What  the  Boston  &  Maine  Owns 19 

The  Rental  Obligations 21 

Excessive  Rentals  Small 22 

Earnings  in  New  Hampshire 23 

The  Company's  Future 25 

THE  FINANCIAL  POSITION  OF  THE  NEW  YORK,  NEW  HAVEN  & 

HARTFORD  RAILROAD 26 

Combined  Earnings  of  Properties 26 

The  Boston  &  Maine  and  Ontario  Investments 27 

The  Company's  Dividend  Policy 28 

Assets  and  Liabilities 29 

The  Depreciation   Problem 30 

Good  Condition  of  Way  and  Structures 30 

Equipment 31 

Trolley  Properties 32 

Steamships 33 

Financial  Results  of  Subsidiaries 34 

The  Outlook 36 

[THREE] 

267759 


Page 

THE  PUBLIC  AND  THE  NEW  ENGLAND  RAILROADS        ....  37 

The  Question  of  Equity 37 

Fair  Dealing  in  the  Interest  of  the  Public 38 

The  Point  at  Issue 38 

The  Case  of  the  Boston  &  Maine 39 

As  to  the  New  Haven 39 

Outside  Investments  as  a  Factor 40 

REASONABLE  LINES  OF  POLICY 41 

Expenditures  at  Boston 42 

The  Tunnel  Proposal 43 

Electrification 43 

The  Question  of  Rates 44 

Higher  Costs  of  Railroading 45 

No  Compensation  in  Rates 46 

The  Outlook  for  Rate  Readjustments  in  New  England     .  46 

Interstate  Rates  and  Other 47 

The  Joint  Control  of  the  New  Haven  and  Boston  &  Maine     .  48 

Some  First  Principles 49 

Their  Application  to  New  England 50 

The  Question  of  Service 50 

The  Boston  &  Maine  Needs  the  New  Haven    .      .      .      .51 

If  Continued  New  Haven  Control,  in  What  Form?      .      .  52 

The  Present  Status 52 

The  Lease  Method 52 

As  to  Consolidation 53 

A  New  England  Railway  System 54 

THE  FINANCING  OF  THE  BOSTON  &  MAINE 55 

An  Obstructed  Stock  Issue 55 

Dangers  of  Further  Bond  Output 56 

As  to  a  Stock  Issue  "at  Par" 56 

The  One  Thing  to  Do 57 

Temporary  Borrowings  Should  be  Reduced 58 

Difficulties  of  Equipment  Trust  Plan 59 

THE  TIME  FOR  A  LIBERAL  VIEW  60 


[FOUR] 


THE  PUBLIC,  THE  INVESTOR  AND  THE 
RAILROADS  OF  NEW  ENGLAND 


A    WORD    ABOUT    FAIR    PLAY 

This  discussion  is  addressed  to  the  investors  in  the  New 
York,  New  Haven  &  Hartford  and  Boston  &  Maine  railroads 
and  their  leased  and  controlled  lines,  and  to  the  public  of  New 
England  in  its  relations  with  these  companies.  First,  as  to 
some  basic  principles. 

The  investor  who  risks  money  in  a  private  business  is 
entitled  to  that  return  which  can  be  earned  by  the  sale  of  the 
product  or  the  services  of  such  business  in  the  open  market. 
The  investor  in  shares  of  a  public  utility  is  not  so  placed.  He  is 
limited  in  his  return ;  always  in  theory,  and  now  to  a  growing 
extent  in  practice.  The  public,  which  enables  a  corporation 
to  carry  on  a  business  by  virtue  of  rights  of  eminent  domain, 
the  use  of  public  ways,  and  perhaps  even  protection  in  some 
degree  of  monopoly,  rightfully  reserves  the  power  both  to  fix 
the  quality  of  the  service  and  to  limit  the  corporation's  charges, 

But  while  the  public  holds  this  power  over  the  corporation, 
it  is  itself  under  obligations  to  those  who  contribute  funds  to 
the  providing  of  a  public  service- 

No  more  than  for  any  business  enterprise,  can  the  State 
protect  investors  in  a  public  utility  against  bad  management, 
or  against  misfortune  for  which  the  public  is  not  to  blame.  It 
cannot  guarantee  stockholders  a  dividend.  Rarely,  nowadays, 
does  it  even  guarantee  the  bondholders.  But  in  the  exer- 
cise of  its  power  over  service  and  over  rates  it  both  can,  and 
should,  do  three  things : 

First,  restrict  its  demands  upon  the  companies  to  that 
extent  and  quality  of  service  which  is  justified  on  business 
grounds. 

Second,  permit  the  adjustment  of  rates  and  charges  on  a 
basis  that  will  meet  the  cost  of  the  service  rendered,  including 
sufficient  maintenance  of  the  property,  and  a  proper  return 
upon  every  dollar  of  capital  honestly  employed  in  the  business. 

[FIVE] 


Third,  cooperate  in  all  reasonable  ways  toward  the  conduct 
of  the  service  on  the  most  efficient  and  economical  basis. 

A  proper  return  includes,  in  the  case  of  capital  stock,  not 
simply  the  rate  which  can  be  had  upon  a  mortgage  investment 
or  its  equivalent,  but  in  addition  enough  to  compensate  the 
owners  of  the  business  for  the  risk  incurred.  Moreover,  when 
the  policy  of  the  public  for  a  long  series  of  years  has  made 
possible  the  fixing  of  any  reasonable  rate  of  dividend,  upon  the 
basis  of  which  the  company's  shares  have  been  habitually 
bought  and  sold  in  the  market,  no  such  change  can  be  made  as 
to  reduce  that  dividend  without  an  implication  of  bad  faith.  If, 
however,  the  property  has  not  been  sufficiently  maintained,  it 
would  appear  that  dividends  have  been  to  a  corresponding 
extent  excessive,  and  should  be  reduced  until  such  deficiency 
has  been  made  good. 

The  Case  at  Issue 

The  Boston  &  Maine  Railroad,  barring  most  unforeseen 
alterations  in  circumstances,  is  about  to  suspend  dividend  pay- 
ments upon  its  common  stock,  after  uninterrupted  payments 
for  seventy-five  years  at  an  average  rate  of  about  7^4  per  cent. 
Partly  owing  to  the  resulting  loss  through  its  indirect  owner- 
ship of  more  than  half  of  the  stock  of  the  Boston  &  Maine, 
partly  in  consequence  of  other  unfavorable  developments,  the 
New  York,  New  Haven  &  Hartford  Railroad  is  expected  to 
place  its  stock  upon  a  six  per  cent  dividend  basis,  following 
payments  for  nineteen  years  at  8  per  cent,  one  year  previously 
at  9,  and  twenty-one  years  in  the  earlier  history  of  the  road 
at  10  per  cent. 

Boston  &  Maine  common  stock  has  sold  recently  at  65, 
comparing  with  210  in  1899,  and  with  175^4  m  1906.  New 
Haven  stock  has  touched  113^2,  comparing  with  255  in  1902 
and  with  216  in  1905.  Even  the  guaranteed  stocks  of  leased 
lines,  especially  of  the  Boston  &  Maine  system,  have  suffered 
sympathetic  declines. 

In  what  has  been  said  above  relative  to  certain  underlying 
equities  of  the  railway  proposition,  there  has  been  no  desire  to 
blame  the  public  for  these  unfortunate  conditions,  further  than 
as  our  study  may  demonstrate  in  the  public's  attitude  toward 
the  railroads,  either  past,  present,  or  proposed,  any  violation  of 
the  principles  there  defined.  It  has  been  plainly  stated  that  the 

[six] 


public  cannot  protect  investors,  or  at  least  cannot  protect 
stockholders,  against  mistakes  in  management  or  against  mis- 
fortune not  related  to  public  policy.  And  our  review  of  con- 
ditions, it  is  believed,  will  show  that  to  both  of  the  last-named 
causes  some  of  the  present  troubles  of  New  England  railway 
investors  are  due. 

We  are  concerned  in  arguing  simply  that  the  public  has 
a  duty  toward  investors,  and  should  be  as  zealous  in  conform- 
ing to  that  obligation  as  in  demanding  that  the  public  service 
corporation  perform  its  duty  to  the  people.  With  this  principle 
in  view,  and  consistently  with  the  three  lines  of  policy  above 
proposed,  the  following  suggestions  are  ventured  as  an  equit- 
able position  of  the  public  toward  New  England  railways  and 
their  investors  in  the  present  situation.  The  arguments  in 
favor  of  such  proposals  will  be  stated  elsewhere. 

Certain  Proposals 

(1)  Requirement  of  all  capital   outlays  not  reasonably 
necessary   should   be   deferred   or  withdrawn.     This   applies 
especially  to  proposed  electrification  throughout  the  Metro- 
politan district,  and  certain  other  expenditures  at  Boston ;  but 
not  necessarily  to  a  connecting  north  and  south  tunnel  and 
electrification  in  connection  therewith,  though  in  this  matter 
caution  is  necessary. 

(2)  It  should  be  the  purpose  of  the  authorities  of  the 
New  England  States  to  assist  in  an  equitable  readjustment  of 
rates,  especially  in  Boston  &  Maine  territory,  having  in  view 
a  moderate  increase  in  aggregate  revenues  to  compensate  in 
some  degree  for  higher  cost  of  operation. 

(3)  All  proposals  for  separate  control  of  the  Boston  & 
Maine  system  should  be  dismissed,  and  the  New  Haven  man- 
agement should  be  encouraged  in  efforts  toward  more  econ- 
omical and  effective  operation  of  the  two  roads.    The  control 
should  continue  for  the  present  under  the  existing  arrange- 
ment, and  inquiries  should  be  inaugurated  with  a  view  to  future 
outright  consolidation  of  the  two  properties,  with  adequate 
protection  to  the  interests  of  Boston  and  northern  New  Eng- 
land.   Under  no  circumstances  should  the  Boston  &  Maine  be 
leased  to  the  New  Haven. 

Before  arguing  these  proposals  it  will  be  necessary  to 
consider  the  financial  position  of  the  Boston  &  Maine  and  New 
York,  New  Haven  &  Hartford  railroads. 

[SEVEN] 


WHAT    IS    WRONG? 

It  is  the  mode  in  current  discussions  to  attribute  to  the 
management  now  dominant  in  the  New  England  railways  most 
of  the  ills  having  to  do  with  them ;  and  this  has  naturally 
extended  in  some  degree  to  the  troubles  of  stockholders.  No 
effort  will  be  made  at  this  point  to  define  the  degree  of 
responsibility,  if  any,  attaching  to  that  management,  other- 
wise than  to  observe  that  for  the  decline  in  Boston  &  Maine 
stock  the  New  Haven  management,  though  now  in  control  of 
the  system,  is  in  no  degree  accountable.  It  is  proposed  to 
point  out,  rather,  that  we  are  confronting  problems  which  have 
more  to  do  with  conditions  attending  the  development  of  rail- 
ways in  New  England  than  with  persons,  or  with  personal  acts 
or  policies. 

New  England  as  a  Railway  Territory 

At  the  outset,  it  should  be  remembered  that  the  building 
and  operating  of  railroads  in  New  England  is  a  matter  radi- 
cally different  from  railway  building  and  operation  across 
western  plains.  The  hilly,  irregular,  and  rocky  character  of 
much  of  the  territory,  combined  with  a  climate  augmenting  the 
resulting  difficulties  in  maintenance  and  operation;  the  com- 
plexity of  short  lines  and  short  hauls  with  proportionately 
large  terminal,  station,  and  junction  expense ;  the  multitude 
of  highway  crossings  with  imperative  demand  for  separating 
grades  at  the  more  important;  these  and  other  things  con- 
tribute to  swell  construction  and  operating  costs  and  to  keep 
down  net  revenues. 

All  this  is  far  from  implying  that  New  England  is  not  a 
favorable  territory  for  railroading.  Such  disadvantages  are 
largely  offset  by  the  dense  population  of  a  large  portion  of  the 
area  served,  together  with  the  native  energy  of  our  people  and 
a  high  degree  of  industrial  prosperity.  Nor  do  the  facts  cited 
explain  why  certain  railways  in  other  sections,  roads  which 
also  have  their  construction  and  operating  difficulties,  should 
seem  in  a  financial  position  superior  to  that  of  the  New  England 
lines.  Yet  such  factors  have  no  slight  importance  in  account- 
ing for  prevailing  conditions ;  an  importance  due,  not  so  much 
to  these  natural  handicaps  in  themselves,  as  to  their  combina- 
tion with  other  difficulties  arising  from  an  unsystematic  devel- 
opment and  a  misguided  financial  policy. 
[EIGHT] 


Short-sighted  Policies 

Let  us  suppose  some  critic  of  a  generation  ago  to  have 
stated  that  certain  New  England  railroads  were  laboring  under 
disadvantages  which  were  likely  sooner  or  later  to  embarrass 
them.  The  suggestion  doubtless  would  have  been  met  with 
tolerant  smiles,  and  a  reference  to  the  large  dividends  then 
being  paid.  Who,  it  would  have  been  asked,  could  presume  to 
say  that  the  level-headed  business  men  on  the  boards  of 
directors  of  these  railways  were  unable  to  determine  whether 
such  dividends  were  being  earned,  and  would  continue  to  be 
earned? 

The  view  thus  expressed  would  have  seemed  well  sus- 
tained, under  the  conditions  then  existing.  Despite  some 
handicaps,  our  railway  enterprise  had  been  favored  in  many 
ways.  The  more  important  lines  were  constructed,  not  in  the 
fashion  of  many  western  roads,  in  advance  of  population  and 
business,  but  to  serve  communities  already  fairly  well 
developed.  Moreover,  while  railway  construction  in  New  Eng- 
land was  by  no  means  exempt  from  mis  judgments  and  doubt- 
ful financial  methods,  on  the  whole  our  roads  seem  to  have 
been  commendably  free  from  stock  watering  of  a  serious  char- 
acter, and  from  other  intricacies  of  high  finance  which  at  some 
stage  have  entangled  certain  western  lines. 

Some  roads,  it  is  true,  chiefly  in  the  less  populous  and 
prosperous  sections,  encountered  trouble  at  one  or  another 
period  of  their  development;  and  the  assistance  of  the  public 
treasury  was  in  certain  cases  an  important  factor.  Yet  many  of 
the  more  important  companies  were  able  from  the  start  to  give 
a  good  account  of  themselves  —  even  to  take  over  the  burdens 
of  less  successful  connecting  or  competing  lines  —  and  not 
only  to  meet  obligations  but  to  pay  substantial  dividends  to 
stockholders.  So  far  as  indicated  by  the  statistics,  and  these 
are  reasonably  complete  for  more  than  forty  years  back,  the 
New  England  railway  properties  as  a  whole  have  given  their 
shareholders  a  better  return  than  those  in  any  other  group  of 
States. 

Growing  Demands  of  Business 

But  the  high  tide  of  prosperity  upon  our  railroads  —  from 
the  stockholders'  viewpoint  —  came  at  a  period  when  trans- 
portation was  still  virtually  in  its  infancy,  and  when  the  com- 

[NINE] 


munities  served  were  yet  to  see  their  most  remarkable  growth. 
Those  responsible  failed,  seriously  though  perhaps  excusably, 
to  foresee  the  demands  which  were  shortly  to  be  made  upon  the 
facilities  of  their  roads  by  rapidly  growing  traffic  and  the 
exactions  of  modern  railroading,  and  to  consider  that  the  out- 
lays to  be  required  were  constantly  growing  as  land  values 
advanced  and  antiquated  facilities  became  more  closely  inter- 
twined with  growing  communities  and  peculiarities  of  topog- 
raphy. Officials  of  the  many  small  systems  which  at  the  period 
in  review  still  comprised  our  railroad  map  did  not  as  a  rule 
realize,  not  only  that  in  the  course  of  time  the  demands  of 
transportation  were  to  require  an  almost  universal  merging 
of  the  New  England  roads,  but  that  along  with  such  merging 
both  the  community  and  the  roads  were  to  feel  acutely  the 
effects  of  a  haphazard  railway  development  through  a  host  of 
small  companies,  some  three  hundred  in  the  aggregate,  and  that 
sooner  or  later  large  expenditures  must  be  made  for  the  wiping 
out  of  primitive  separate  facilities  and  the  substitution  of 
unified  plants.  Nor  did  they  realize  that  before  many  years 
public  authority  was  to  lay  a  firm  grip  on  railroad  rates, 
with  resulting  embarrassment  to  railroad  managements  and 
investors. 

The  Investment  Phase  of  the  Case 

In  view  of  this  grave  misunderstanding,  this  condition  of 
fictitious  soundness,  it  was  natural  that  the  stocks  of  New 
England  railways  should  be  placed  upon  a  false  basis  as  to 
dividends  and  market  value.  And  it  was  equally  natural  that  as 
the  true  condition  was  gradually  revealed,  and  with  it  the 
necessity  of  spending  earnings  liberally  upon  the  properties 
and  buttressing  the  credit  of  the  roads  for  the  purpose  of  raising 
large  amounts  of  new  capital,  those  responsible  for  the  rail- 
ways' financial  policy  should  have  hesitated  to  impose  upon 
their  thousands  of  stockholders  the  severe  hardship  involved 
in  the  one  change  of  policy  most  clearly  called  for.  That 
policy  was  the  radical  curtailment  of  dividends. 

New  England  Railroads  a  Decade  Back 
Ten  years  ago  the  two  principal  systems,  having  absorbed 
between  them  the  greater  part  of  the  New  England  railway 
mileage,  were  operating  with  a  conservatism  —  not  to  say  back- 
wardness — in  transportation  policy,  and  a  liberality  in  divi- 
[TEN] 


dends,  reflecting  plainly  the  peculiar  conditions  above  cited. 
In  the  territory  of  the  Boston  &  Maine  system  the  dividend 
ideas  of  a  previous  generation  had  become  fastened  upon  the 
community,  not  alone  in  the  dividend  rate  of  the  parent  system, 
but  through  a  series  of  leases,  with  guaranteed  rentals  now 
realized  to  have  been  in  some  cases  excessive.  On  the 
whole,  the  New  York,  New  Haven  &  Hartford  was  in  the 
stronger  position  of  the  two  roads;  a  condition  reflecting  in 
the  main,  apparently,  the  greater  population  density  and  in- 
dustrial growth  of  the  territory  served,  and  important  traffic 
advantages.  Both  roads,  however,  were  behind  the  times. 
Some  steps  had  been  taken  toward  modernizing,  but  the  prop- 
erties in  the  main  were  not  up  to  increasing  demands. 

The  Change  to  Modern  Methods 

It  was  at  this  juncture  that  the  New  Haven,  realizing  its 
inadequacy,  called  in  a  president  of  modern  ideas  to  reconstruct 
the  system  —  but  to  continue  the  8  per  cent  dividend.  The 
new  executive  vigorously  attacked  his  problem,  and  with 
strong  financial  backing  and  assisted  by  the  prestige  of  his 
road  with  stockholders,  who  were  asked  to  put  up  large  sums 
of  new  capital,  he  began  railroading  upon  a  modern  plan. 
Plant  and  equipment  were  vastly  improved.  And  in  addition 
to  the  rehabilitation  of  the  New  Haven  system  proper,  a  policy 
was  pursued  of  expanding  the  interests  of  the  road  to  include 
a  large  number  of  trolley  properties,  certain  additional  steam- 
boat lines,  and  a  large  additional  mileage  of  steam  railway, 
including  the  Central  New  England,  the  New  York,  Ontario  & 
Western,  and  the  Boston  &  Maine  and  Maine  Central. 

All  of  these  changes  involved  heavy  increases  in  capital 
stock  and  indebtedness,  and  rapidly  mounting  charges.  Yet 
the  territory  was  growing,  business  was  expanding;  the  man- 
agement was  full  of  optimism.  Despite  some  question,  in  view 
of  the  bad  condition  of  the  New  Haven  road  when  Mr.  Mellen 
assumed  charge,  whether  it  would  not  have  been  wiser  to  have 
reduced  the  dividend  at  that  time,  the  company  evidently  would 
have  pulled  through  without  the  present  menace  to  its  8 
per  cent  rate  had  it  not  been  for  these  adverse  factors : 

d)  Rising  cost  of  operation,  especially  the  necessity  for 
large  increase  in  wages,  without  opportunity  for  corresponding 
advance  in  rates. 

[ELEVEN] 


(2)  Loss  of  income  through  reduction  of  the  Boston  & 
Maine  dividend  in  the  fiscal  year  1911  from  a  6  to  a  4  per  cent 
basis   (with  prospective  suspension  of  dividends  on  common 
stock)  also  the  passing  of  the  New  York,  Ontario  &  Western 
dividend  in  the  fiscal  year  1912. 

(3)  Dividend    returns    from    certain   trolley    and    other 
investments  insufficient  to  compensate  for  their  carrying  cost. 
(On  this  point  see,  under  discussion  of  the   New  Haven's 
financial  position,  the  combined  income  account  including  all 
net  earnings  of  subsidiaries.    It  is  to  be  remembered,  however, 
that  the  parent  company  cannot  conveniently  collect  in  divi- 
dends all  of  these  net  earnings.) 

Beginning  about  three  years  after  the  inauguration  of  the 
New  Haven's  altered  policy,  the  Boston  &  Maine  also  entered 
upon  a  courageous  plan  of  improvement,  and  this  policy  has 
been  pursued  on  a  somewhat  larger  scale  since  the  legalizing 
of  control  by  the  New  Haven,  in  1909.  The  Boston  &  Maine 
has  not  been  troubled  with  losing  investments,  as  has  the  New 
Haven  —  for  which  it  has  contributed  the  most  important 
single  instance  —  but  has  felt  severely  the  advance  in  operating 
cost,  sharing  with  the  New  Haven  the  burden  of  heavily 
increased  pay-rolls.  Combined  with  other  adverse  factors 
reviewed  elsewhere,  and  with  the  necessity  for  higher  main- 
tenance charges,  this  development  has  made  necessary  a  reduc- 
tion of  almost  one-half  in  the  common  stock  dividend  as  com- 
pared with  the  rate  paid  up  to  and  including  1908,  and  virtually 
a  decision  to  suspend  the  dividend  altogether  beginning  with 
the  coming  new  fiscal  year. 

In  a  further  consideration  of  the  present  financial  condition 
of  the  two  companies  it  is  convenient  to  deal  first  with  the 
Boston  &  Maine,  both  because  of  the  more  serious  reverses 
recently  in  that  company's  standing  and  the  important  bearing 
of  the  Boston  &  Maine  position  on  that  of  the  New  Haven. 


THE    FINANCIAL    POSITION    OF    THE 
BOSTON  &  MAINE    RAILROAD 

At  the  end  of  the  fiscal  year  1912,  the  Boston  &  Maine 
Railroad  had  outstanding  common  stock  to  the  amount  of 
$39»5°5>39°>  and  preferred  to  the  amount  of  $3,149,800;  the 
[TWELVE] 


common  stock  being  92.6  per  cent  of  the  whole.  The  common 
stock  at  the  end  of  the  fiscal  year  1905  was  $24,638,070;  the 
preferred  stock  the  same  as  at  present.  During  the  eight- 
year  period,  from  1905  to  1912  inclusive,  the  results  of  the 
road's  operation,  credit  being  given  for  all  charges  against 
earnings  for  additions  and  improvements,  were  as  below.  The 
rates  given  apply  to  the  common  stock  outstanding  at  the  end 
of  the  year;  the  preferred  receives  6  per  cent  regularly. 

Rate  Earned       Rate  Paid  Balance  After 

Per  Cent.          Per  Cent.  Dividend  Payments 

1912  2.8  4.0  Deficit,     $477,703 

1911  .4  5-5  Deficit,    1,602,982 

1910  9.3  6.0  Surplus,     982,101 

1909  7.1  6.0  Surplus,     570,242 

1908  2.0  7.0  Deficit,    1,409,661 

1907  8.6  7.0  Surplus,     625,863 

1906  7.5  7.0  Surplus,     217,273 

1905  6.9  7.0  Surplus,       76,926 

In  the  1912  annual  report  President  Mellen  stated  that  the 
process  of  rehabilitating  the  road  would  take  at  least  two  years 
more,  and  added,  "The  full  effect  of  the  economies  expected 
will  not  be  available,  and  the  net  results  in  consequence  will 
not  be  flattering;  but  it  is  believed  that  the  property  will  be 
able,  under  existing  conditions,  to  fully  earn  the  dividends 
now  paid,  and  probably,  if  conditions  continue  as  favorable 
as  at  the  present  time,  an  extra  slight  disbursement  may  be 
anticipated  at  about  the  close  of  each  fiscal  year." 

Recent  Reverses 

At  the  time  the  above  was  made  public,  early  in  the  fall 
of  1912,  business  conditions  in  Boston  &  Maine  territory  were 
promising.  Since  then  these  conditions  have  changed  sharply 
for  the  worse.  The  road  has  continued  also  to  feel  the  effect 
of  rising  operating  costs.  Borrowings  in  the  money  market 
have  cost  more.  On  the  first  of  January  an  increase  of  nearly 
thirty  per  cent  took  effect  in  the  charge  for  rentals  of  foreign 
freight  cars.  With  all  of  these  reverses,  the  prediction  of 
Mr.  Mellen  proves  unfortunately  to  have  been  in  error,  and 
there  appears  every  reason  to  anticipate  not  only  that  the 
road  will  show  for  the  current  year  no  material  balance  earned 

[THIRTEEN] 


on  the  common  stock,  but  that  the  four  per  cent  dividend, 
only  sustained  of  late  by  drawing  down  the  Company's  al- 
ready slender  profit  and  loss  surplus,*  will  be  suspended 
altogether. 

Under  such  circumstances  it  is  not  unnatural  that  the 
investment  public  should  recall,  with  some  uneasiness,  an- 
other factor  in  the  Boston  &  Maine  situation,  to  which  atten- 
tion was  called  in  a  rather  startling  way  by  President  Mellen 
less  than  two  years  ago.  The  lease  of  the  Suncook  Valley 
Railroad,  a  seventeen-mile  New  Hampshire  line  of  slight 
importance,  expired  at  the  end  of  1911.  Apropos  of  its  re- 
newal, which  was  accomplished  at  one-half  the  former  rental, 
Mr.  Mellen  wrote  to  counsel  for  the  stockholders  of  the  leased 
road  a  letter  which  contained  the  following: — 

"The  major  portion  of  the  mileage  of  our  leased  lines  in 
New  Hampshire  is  at  the  present  time  far  from  self-support- 
ing, considering  present  conditions  surrounding  railroad  oper- 
ation in  that  State,  and  is  fast  coming  to  be  so  great  a  burden 
that  it  may  become  a  necessity  to  reduce  the  rentals  paid,  if 
not  by  negotiation  with  the  owners, —  in  last  resort,  through 
the  medium  of  the  courts  and  a  receivership.  Nothing  but 
the  support  given  the  Boston  &  Maine  in  the  present  crisis  in 
its  affairs  by  the  New  Haven  has  thus  far  saved  it  from  such 
a  recourse  .  .  ." 

Reassuring  Factors 

In  ways  which  bear  the  stamp  of  authority,  it  has  been 
declared  since  the  recent  decline  in  share  values  that  all  idea 
of  a  Boston  &  Maine  receivership  "may  be  instantly  dis- 
missed." Plainly,  such  a  policy  would  seem  remote  from  the 
ideas  of  the  New  Haven  management  if  that  company,  as 
appears  from  all  the  evidence,  desires  to  retain  its  control. 
Yet,  under  circumstances  such  as  those  just  reviewed,  the 
stockholders— and  holders  of  the  bonds  and  guaranteed  stocks 
as  well  —  may  be  excused  for  wishing  at  least  to  examine  the 
situation  a  little  more  closely  with  respect  to  the  real  merits 

*This  now  stands  at  $1,812,090,  not  including  assets  secured 
through  premiums  received  on  issues  of  capital  stock,  the  amount  of 
such  premiums  being  $6,501,620.  The  surplus  would  be  much  in- 
creased, presumably,  by  writing  into  the  assets  all  present  values  of 
right  of  way  and  real  estate,  as  was  done  for  the  New  Haven  in  the 
Validation  report. 

[FOURTEEN] 


of  the  case.  In  such  an  inquiry  the  results  seem  favorable ; 
provided,  at  least,  that  the  road  is  left  to  work  out  its  prob- 
lems along  business  lines,  is  not  unduly  burdened  with  un- 
profitable improvements,  and  is  not  too  rigidly  restricted  as 
to  rates. 

One  reason  for  a  more  hopeful  view  is  to  be  found  in  the 
large  growth  of  the  company's  business.  From  1901  —  the 
year  after  the  Fitchburg  lease  —  to  1912,  inclusive,  the 
gross  earnings  of  the  system  increased  from  $30,807,000  to 
$45,990,000.  This  is  almost  a  fifty  per  cent  gain  in  gross,  with 
an  increase  in  main  track  owned  and  leased  of  slightly  over 
five  per  cent. 

Improvements  in  the  Property 

A  second  favorable  point  is  the  improved  physical  condi- 
tion of  the  property.  That  the  condition  to-day  is  not  what 
could  be  wished  is  well  understood,  both  from  matters  of 
general  knowledge  and  the  peculiar  combination  of  circum- 
stances reviewed  above  in  our  outline  of  New  England  rail- 
way development.  Yet  it  must  not  be  assumed  that  the 
Boston  &  Maine  to-day  is  a  stationary  or  retrograding  prop- 
erty, for  the  reverse  is  true.  We  have  noted  that  a  period  of 
Boston  &  Maine  rehabilitation  set  in  about  three  years  after 
Mr.  Mellen's  becoming  president  of  the  New  Haven.  It  may 
be  said  further  that  in  the  seven  fiscal  years,  from  1906  to 
1912,  inclusive,  capital  expenditures  upon  the  system  aggre- 
gated about  $38,046,000,  divided  as  follows : — 

Equipment    $21,754,822 

Tracks,  bridges,  culverts,  tunnels,  etc.  4,571,792 

Buildings,  structures,  real  estate,  etc..  4,744,451 

Separation  of  grades 3,049,729 

Block   signals    1,152,051 

Other  improvements  and   capital   ex- 
penditures    2,773,512 

It  is  interesting  to  note  that  of  the  above  total  the  amount 
pertaining  to  the  period  since  the  beginning  of  New  Haven 
influence  in  the  Boston  &  Maine  system,  that  is,  the  four  fiscal 
years  from  1909  to  1912,  inclusive,  is  $23,544,000.  A  statement 
very  recently  made  public  shows  that  from  the  date  of  formal 
control,  with  New  Haven  executive  officers  in  charge,  which 

[FIFTEEN] 


was  September  i,  1910,  to  the  present,  money  has  been  put  into 
capital  expenditures  to  the  amount  of  about  $18,800,000. 

Considerable  additional  amounts  have  been  appropriated, 
being  in  large  part  contingent  upon  pending  measures  of 
financing.  The  last  annual  report,  in  recommending  the  issue 
of  new  stock  and  bonds,  specified  among  other  objects  of  ex- 
penditure the  purchase  of  6,000  freight  cars  —  partly  to  meet 
a  forthcoming  advance  in  the  per  diem  charge  for  use  of  cars 
of  other  systems  —  100  passenger  cars,  and  80  locomotives. 
Other  items  included  additional  second,  third,  and  fourth 
track,  sidings  and  spur  tracks,  engine  houses,  bridges,  freight 
houses  and  yards,  and  miscellaneous  necessities  of  the  road, 
The  new  securities  proposed  have  not  yet  been  issued,  but  the 
betterments  have  been  partly  provided  for  by  temporary  bor- 
rowings referred  to  elsewhere. 

In  short,  the  Boston  &  Maine  property  has  been  vastly 
improved,  and  the  improvements  have  shown  in  earnings, 
operating  economies,  and  service.  Equipment  has  been 
greatly  increased,  new  tracks  have  been  laid,  freight  houses 
and  yards  have  been  enlarged.  Large  expenditures  are  being 
made  to  improve  facilities  at  the  important  gateways  where 
traffic  is  interchanged  with  other  lines  to  the  north  and 
west.  Much  remains  to  be  done,  but  it  is  plain  that  the  sys- 
tem is  already  in  an  encouraging  state  of  progress.  This 
applies  also  to  the  controlled  Maine  Central,  in  which  the 
Boston  &  Maine  has  been  called  upon  to  make  a  large  addi- 
tional investme.nt. 

Stockholders'  Money  in  Betterments 

Improvements  have  not  been  brought  about  simply  by 
increase  of  indebtedness.  The  debt  increased,  it  is  true,  dur- 
ing the  1906  to  1912  period,  from  $31,305,000  to  $55,849,000. 
But  of  the  $38,046,000  mentioned  as  the  total  of  capital 
expenditures  for  twelve  years,  almost  half,  or  in  figures 
$18,522,000,  was  secured  by  the  issue  of  capital  stock.  Two 
sales  of  stock  were  made  during  the  period ;  the  first,  in  1906, 
of  $4,203,700  par  value  at  $165  a  share ;  and  the  second,  in 
1910,  of  $10,663,700,  at  $110  a  share.  In  both  cases  the  greater 
part  of  the  issue  was  subscribed  for  at  the  offering  price,  the 
remainder  being  disposed  of  by  auction  at  a  somewhat  lower 
figure. 

[SIXTEEN] 


It  may  occur  to  the  reader,  as  well,  that  according  to 
the  annual  reports,  certain  betterment  expenditures  have  been 
made  from  earnings.  On  this  point,  unhappily,  the  case  for 
the  road  is  far  from  strong.  It  is  true  that  during  the  four 
fiscal  years  from  1907  to  1910,  inclusive,  the  company  reported 
betterment  expenditures  charged  against  earnings,  to  the 
aggregate  amount  of  about  $814,000,  (not  counting  $170,000 
spent  in  the  last  two  years  in  betterments  to  leased  lines  and 
charged  against  the  parent  company  as  rentals).  It  is  also 
true  that  in  various  years  during  the  period  from  1906  to  1912, 
inclusive,  a  surplus  was  reported  after  all  charges  and  divi- 
dends, the  aggregate  of  such  amounts  being  $1,662,000.  Thus 
far,  we  should  have  an  apparent  improvement  in  the  com- 
pany's financial  position  to  the  total  amount  of  $2,477,000. 

But  the  reverse  of  the  shield  is  quickly  apparent.  For  in 
three  years  of  this  period — 1908,  1911,  and  1912  —  the  com- 
pany reported  deficits  amounting,  all  told,  to  $3,490,000.  This 
figure  includes  for  the  hapless  year  1908  both  the  formally  re- 
corded deficit  of  $866,000  and  the  contingent  fund  of  $543,000, 
representing  unappropriated  surplus  for  the  previous  six  years, 
which  was  drawn  into  the  earnings  account  to  help  meet  a 
seven  per  cent  dividend,  of  which  less  than  three  per  cent 
was  earned.  So  it  will  be  seen  that  instead  of  a  gain  of 
$2,477,000,  the  real  result  for  the  period  so  far  as  shown  by 
income  accounts  was  a  loss  of  $1,013,000. 

Increase  in  Maintenance  Expenditure 

This,  however,  is  not  quite  the  end  of  our  analysis.  From 
a  closer  study,  not  of  the  general  income  account,  but  of  the 
detailed  record  of  operating  expenses,  there  appears  one  factor 
which  should  considerably  more  than  offset  the  adverse  show- 
ing above  explained.  This  is  the  increase  in  expenditures 
from  earnings  for  maintenance  of  property. 

During  the  seven-year  period  ended  with  the  fiscal  year 
1907,  the  period  covered  by  the  accountants'  report  to  the 
Commission  on  Commerce  and  Industry,  the  average  annual 
expenditure  for  maintenance  of  way  and  structures  per  mile 
of  main  track  owned  and  leased,  was  $1,525.  For  the  five- 
year  period,  ended  with  the  fiscal  year  1912,  the  average  was 
$1,864.  In  the  1911  and  1912  years,  respectively,  it  was 
$2,174  and  $2,023.  In  the  first-named  period  the  average 

[SEVENTEEN] 


annual  allowance  for  locomotive  repairs,  renewals,  and  depre- 
ciation was  $1,531  per  locomotive;  in  the  second  period  it 
was  $1,830.  The  average  annual  allowance  for  repairs,  re- 
newals, and  depreciation  of  freight  cars  was  $58.40  in  the 
first  period ;  $83-00  in  the  second.  In  the  item  of  passenger 
car  maintenance  alone  the  comparison  is  not  favorable,  the 
average  for  the  first  period,  $527,  comparing  with  $498  for  the 
second-  In  the  1910  and  1911  years,  however,  the  allowances 
per  car  were  respectively  $525  and  $591. 

From  the  favorable  comparisons  cited,  covering  by  far 
the  greater  part  of  the  maintenance  expenditures,  stockholders 
may  reasonably  infer  that  their  equity  in  the  property  has 
been  materially  increased  during  the  last  few  years,  aside 
from  the  better  conditions  brought  about  by  the  raising  of 
new  capital.  It  does  not  follow,  because  maintenance  ex- 
penditures have  increased,  that  they  have  reached  a  figure 
any  larger  than  is  reasonably  required.  The  evidence  indi- 
cates rather  (see  Commerce  and  Industry  report)  that  the 
allowances  of  the  previous  period  were  too  low.  Yet  this  does 
not  destroy  the  favorable  character  of  the  showing  above  cited. 
We  are  not  considering  so  much  the  comparison  of  present 
conditions  with  any  definite  standard,  as  the  progress  from 
a  poor  standard  to  a  better  one.  So  regarded,  the  figures  cited 
are  significant  and  encouraging.  Stated  in  a  form  more  sug- 
gestive to  the  general  reader,  they  show  that  during  the  past 
five  fiscal  years  the  company  has  spent  about  $5,688,000  more 
on  maintenance  accounts  than  would  have  been  spent,  the 
nature  of  road  and  equipment  being  equal,  had  the  stan- 
dards of  the  earlier  period  been  adhered  to.  Given  any  neces- 
sary deductions,  this  figure  would  seem  at  least  to  contain  a 
margin  wide  enough  to  offset  very  amply  the  losses  above 
referred  to  in  the  company's  income  accounts. 

The  Leased  Lines 

But  conceding  these  favorable  aspects  of  the  case,  what 
will  they  profit  to  the  Boston  &  Maine  stockholder  if,  as  in 
various  ways  more  than  intimated,  the  road  in  combination 
with  its  greatly  increased  operating  costs  is  laboring  under 
a  heavy  burden  of  unremunerative  leases? 

Since  the  recent  fall  in  Boston  &  Maine  stock,  President 
Mellen  has  been  asked  whether  any  official  plan  is  in  contem- 
[  EIGHTEEN] 


plation  whereby  a  readjustment  may  be  sought  of  the  rentals 
of  the  Boston  &  Maine's  leased  lines ;  to  which  the  reply  was 
made  that  "Such  a  thing  has  absolutely  never  been  consid- 
ered." This  is  a  welcome  reassurance,  and  apparently  dem- 
onstrates the  needlessness  of  sharp  declines  in  some  of  the 
guaranteed  stocks  which  accompanied  the  break  in  the  shares 
of  the  parent  road.  Yet  investors  inevitably  recall  Mr.  Mellen's 
pointed  remarks,  above  quoted,  in  the  Suncook  Valley  episode, 
and  the  fact  that  the  question  of  losing  rentals  figured  prom- 
inently both  in  the  arguments  of  counsel  and  the  official  find- 
ings in  the  subsequent  New  Hampshire  rate  investigation. 

It  may  very  well  be,  indeed,  that  the  Boston  &  Maine 
intends  if  humanly  possible  to  comply  with  the  leased  line 
contracts  to  which  it  has  deliberately  committed  itself.  That 
is  wholly  creditable.  But  where  is  the  comfort  to  Boston  & 
Maine  stockholders?  The  investor  will  ask,  naturally, 
whether  the  improvements  made  and  the  better  earnings 
promised  mean  simply  that  the  company  is  being  placed  in 
a  better  position  to  pay  these  large  rentals,  and  that  the 
owners  of  the  company's  thirty-nine  millions  of  common 
stock,  many  of  whom  have  paid  prices  all  the  way  up  to 
$210  a  share,  are  to  be  left  somewhat  completely  in  the  cold. 

In  view  of  this  state  of  uncertainty,  it  seems  worth  while 
to  review  carefully  the  leased  line  situation,  and  to  point  out 
that  so  far  as  the  evidence  indicates  stockholders  may  feel 
assured  on  both  of  these  points :  first,  that  there  is  no  vital 
necessity  of  reduction  of  leased  line  obligations ;  and  second, 
that  with  any  fair  adjustment  between  rates  and  operating 
expenses  the  company  should  be  able  to  meet  its  rental  obli- 
gation and  pay  reasonable  dividends  in  the  not  distant  future 
to  its  own  stockholders. 

What  the  Boston  &  Maine  Owns 

At  the  outset,  it  may  be  well  to  point  out  how  much  of 
the  Boston  &  Maine  system  the  stockholders  own,  and  how 
much  is  leased.  Of  the  lines  owned  the  most  valuable  are  the 
two  important  roads  between  Boston  &  Portland,  Maine, 
owned  with  the  exception  of  a  few  miles  out  of  Portland. 
These  lines  make  a  total  of  206  miles ;  157  miles  double- 
tracked.  One  of  them  is  the  descendant  of  the  original  Boston 
&  Maine ;  the  other  of  the  former  Eastern  Railroad.  From 

[NINETEEN] 


Jewett,  Maine,  on  the  Eastern,  a  line  73  miles  in  length 
extends  to  Intervale,  N.  H.,  connecting  with  the  Maine  Cen- 
tral. The  company  also  owns  the  former  Massachusetts  Cen- 
tral, about  96  miles  from  a  point  some  five  miles  out  of  Boston 
to  Northampton,  connecting  with  the  Boston  &  Albany,  the 
Central  Vermont,  or  Grand  Trunk  line,  and  the  New  Haven. 
Also,  through  recent  purchase  now  reflected  in  the  company's 
floating  debt,  the  lines  owned  include  the  former  Worcester, 
Nashua  &  Rochester;  139  miles  from  Worcester  practically 
to  Portland,  including  46  miles  of  double  track. 

Aside  from  these  main  lines,  the  company  has  about 
203  miles  of  branches  more  or  less  important,  including  31 
miles  of  double  track ;  and  398  miles  of  side  track.  Altogether 
the  mileage  of  road  owned  is  707,  or  32  per  cent  of  the  total 
road  owned  and  leased  (2,215  miles),  and  the  mileage  of  track 
owned  1,343,  about  the  same  proportion  of  the  total  track 
owned  and  leased.  The  value  of  road  owned  is  given  in  the 
company's  balance  sheet  as  $55,326,452,  but  no  valuation  is 
published  for  leased  roads.  Equipment  owned  is  valued  at 
$28,660,650,  compared  with  a  valuation  of  $8,161,553  for  equip- 
ment owned  by  leased  roads.  These  figures  as  to  the  value 
of  the  company's  own  property  are  subject  to  deductions  by 
reason  of  depreciation  —  $3,070,228  in  total  amount. 

The  Boston  &  Maine's  capital  stock  of  $42,655,000  com- 
pares with  $60,219,700  for  leased  roads;  funded  debt  of 
$43,849,000  compares  with  $43,588,000.  The  total  capitaliza- 
tion of  the  Boston  &  Maine  proper  is  about  45  per  cent 
of  the  aggregate  for  the  whole  system  owned  and  leased. 
Including  the  Boston  &  Maine's  floating  debt,  now  $22,000,000, 
the  proportion  is  51  per  cent. 

The  leased  lines,  of  which  there  are  about  twenty-five  all 
told,  need  not  be  described  in  detail,  but  attention  should  be 
called  to  their  principal  features.  They  include  the  Fitchburg, 
from  Boston  to  Rotterdam,  N.  Y.,  one  of  New  England's 
two  great  east  and  west  lines,  and  embracing  also  the  connec- 
tion with  the  controlled  Rutland  system  with  its  Montreal 
route  and  connecting  steamships  on  the  Great  Lakes.  They 
include  the  Boston  &  Lowell  and  Nashua  &  Lowell,  forming 
the  trunk  line  of  the  Southern  Division;  the  Northern,  pro- 
viding the  connection  with  the  Grand  Trunk  at  White  River 
Junction,  the  Concord  &  Montreal  to  the  White  Mountains, 
[TWENTY] 


and  the  latter,  with  the  Connecticut  &  Passumpsic,  provid- 
ing the  important  connection  with  the  Canadian  Pacific  at 
Newport,  Vt.  These,  with  the  Connecticut  River,  forming 
about  half  of  the  road's  north  and  south  line  through  central 
New  England,  which  is  continued  by  the  Connecticut  & 
Passumpsic,  form  the  most  important  strategically  and  other- 
wise of  the  leased  properties. 

The  Rental  Obligations 

Now,  as  to  whether  the  leased  roads  are  unprofitable  and 
rental  obligations  should  be  reduced.  A  first  glance  at  the 
company's  income  account,  with  respect  to  rentals,  makes  a 
quite  decided  impression.  "Rentals  of  leased  roads"  are  re- 
ported for  the  last  fiscal  year  as  $5,176,878.  But  from  this 
amount  is  to  be  deducted  at  once,  as  absolutely  unchange- 
able, $1,722,353,  consisting  of  interest  on  the  assumed  bonds. 
Further  deductions  are  to  be  made  of  $32,720  on  account  of 
organization  expenses,  and  $84,620  for  additions  and  better- 
ments charged  as  additional  rental.  These  deductions  leave 
the  amount  paid  as  dividends  to  leased  line  stockholders, 
$3,332,184. 

Even  this  seems  quite  a  large  amount,  compared  with 
$1,767,951  paid  in  the  same  fiscal  year  to  the  Boston  &  Maine's 
own  stockholders  on  a  volume  of  stock  equivalent  in  par 
value  to  more  than  two-thirds  of  the  total  stock  of  the  leased 
lines.  In  making  this  comparison  it  should  be  noted,  how- 
ever, that  if  the  Boston  &  Maine  were  still  paying  a  com- 
mon stock  dividend  of  7  per  cent  as  in  quite  recent  years, 
instead  of  4  per  cent,  its  dividends  to  its  own  stockholders 
in  the  last  fiscal  year  would  have  been  $2,952,174,  or  almost 
nine-tenths  the  amount  paid  to  leased  line  stockholders. 

Next,  with  respect  to  the  possibility  of  any  of  the  rental 
dividends  being  reduced,  we  must  eliminate  completely  sev- 
eral important  lines. 

The  Fitchburg  lease,  providing  for  5  per  cent  on  the 
preferred  stock,  was  made  through  special  act  of  the  Massa- 
chusetts Legislature  as  recently  as  1900.  No  claim  has  been 
made  that  the  rental  is  too  high  for  this  important  road,  and 
there  is  no  likelihood  of  its  being  disturbed-  The  annual 
amount  required  is  $943,000.  With  the  Fitchburg  lease  goes 
that  of  the  Vermont  &  Massachusetts,  covering  about  one- 

[TWENTY-ONE] 


fourth  of  the  Fitchburg  Division  main  line ;  dividend  guar- 
antee, $191,580. 

Three  others,  which  may  be  at  once  eliminated,  are  the 
Boston  &  Lowell,  the  Concord  &  Montreal,  and  the  Con- 
necticut River;  counsel  for  the  company  having  stated  before 
the  New  Hampshire  Public  Service  Commission  that  these 
leases  are  profitable.  This  admission  as  to  the  Concord  & 
Montreal  is  especially  significant,  as  the  history  of  that  com- 
pany includes  certain  of  the  least  creditable  episodes  in  New 
Hampshire  railway  history.  The  guaranteed  dividends  on 
these  three  properties  aggregate  $1,472,230.  The  aggregate 
for  the  five  leases  mentioned  is  $2,415,230,  bringing  the  net 
amount  to  be  considered  down  to  $916,954. 

Three  other  important  leases  may  doubtless  be  elimin- 
ated, on  strategic  grounds.  These  are  the  Nashua  &  Lowell, 
the  Northern,  and  the  Connecticut  &  Passumpsic.  All  three 
are  parts  of  through  routes  vital  to  the  system,  and,  so  far  as 
may  be  inferred,  either  profitable  or  not  materially  otherwise. 
These  three  dividend  guaranties  amount  to  $406,104,  and  their 
deduction  brings  down  the  total  amount  in  question  to 
$510,850.  Even  from  this  sum  it  would  probably  be  neces- 
sary in  any  complete  investigation  to  make  considerable  fur- 
ther reductions,  as  the  guaranties  are  largely  in  line  with  the 
dividends  paid  by  the  various  companies  as  independent  lines 
previous  to  the  leases. 

Excessive  Rentals  Small 

It  may  be  readily  seen  that  the  amount  possible  to  be 
saved  for  stockholders  by  any  attempted  reduction  of  leases 
is  after  all  a  small  one,  and  a  matter  of  little  importance  as 
affecting  the  dividend  position  of  the  Boston  &  Maine  Rail- 
road. In  fact,  a  semi-official  statement  of  recent  date  declares 
that  "the  sum  total  of  extravagant  guaranties  is  not  a  matter 
of  over  $250,000  or  $300,000."  It  is  added  that  the  only  factor 
of  danger  as  to  the  profitableness  of  some  of  the  more  im- 
portant leased  lines  is  the  chance  of  a  Grand  Trunk  extension 
from  White  River  Junction  to  Boston  —  a  plan  now  buried 
practically  beyond  hope  of  revival. 

But,  in  view  of  all  these  considerations,  why,  it  may  be 
asked,  did  President  Mellen  declare  that  "the  major  portion 
of  the  mileage  of  our  leased  lines  in  New  Hampshire  is  at  the 

[TWENTY-TWO] 


present  time  far  from  self-supporting,"  and  threaten  a  receiv- 
ership? For  one  thing,  it  is  true  that  New  Hampshire  con- 
tains quite  a  number  of  leased  lines,  mostly  small,  which  are 
doubtless  questionable  propositions.  It  must  be  remembered, 
also,  that  Mr.  Mellen  was  sparring  for  advantage  in  a  business 
deal  involving  one  of  these  leases-  But,  more  important,  he 
was  confronting  the  determination  of  New  Hampshire  author- 
ities to  enforce  the  statutes  of  1883  and  I&&9,  prohibiting  higher 
rates  on  most  of  the  New  Hampshire  leased  lines  than  the 
charges  in  force  in  these  earlier  years.  As  another  contribut- 
ing factor,  the  Boston  &  Maine  was  suffering  from  what  was 
alleged  to  be  an  unjust  increase  in  its  New  Hampshire  taxes. 
Earnings  in  New  Hampshire 

Moreover,  it  must  not  be  inferred  that  Mr.  Mellen's  state- 
ment lacks  verification,  at  least  if  the  New  Hampshire  lines 
are  to  be  credited  only  with  their  direct  earnings.  Since  the 
letter  in  question  appeared,  the  New  Hampshire  Public  Ser- 
vice Commission  has  made  public  its  report  in  the  rate  inves- 
tigation having  to  do  with  the  statutes  above  mentioned,  and 
in  this  report  a  carefully  prepared  estimate  is  made  of  the 
earnings  of  the  New  Hampshire  lines.  It  has  seemed  worth 
while  to  prepare,  on  this  basis,  as  correct  an  exhibit  as  possible 
with  available  data  as  to  the  profits  and  outgoes  on  all  New 
Hampshire  leased  mileage.  It  will  be  noted  that  the  earnings 
as  compiled  by  the  Commission  for  twelve  months  ended  last 
September  amount  to  22  per  cent  of  the  gross  earnings  of 
the  whole  system  for  the  last  fiscal  year,  and  this  proportion 
is  employed  as  probably  the  most  nearly  approximating  a 
just  division  of  various  charges  against  income.  The  exhibit 
follows : — 

New  Hampshire  earnings  of  Boston  &  Maine  lines, 

eleven  months,  ended  August,  1912 $9,926,493 

Add  September  (treated  as  equivalent  to  August)  .  .     1,150,478 

Earnings  for  twelve  months  $11,076,971 

Deduct  15%  as  proportion  of  New  Hampshire  lines 

(main  track)  owned  by  company 1,661,545 

Earnings  of  New  Hampshire  leased  lines  (22% 
of  gross  for  whole  system   fiscal  year  ended 

June,  1912)   $9,415,426 

[TWENTY-THREE] 


Deduct  76%  for  operating  expenses   7,155,724 

Balance    $2,259,702 

Deduct  New  Hampshire  taxes  for  twelve  months 
ended  September,  1912  ($646,409,  minus  15% 
account  of  lines  owned)  549,448 

Balance    $1,710,254 

Deduct  22%  of  hire  of  equipment  for  1912  fiscal  year       234,079 

Balance    $1,476,175 

Deduct  22%  of  a  proportion  of  B.  &  M.  interest 
charges,  corresponding  to  proportion  of  equip- 
ment and  certain  other  items  to  capital  assets 
of  the  company 149,235 

Earnings  of  New  Hampshire  leased  roads  applicable 

to  rental  obligations  on  the  same  $1,326,940 

The  rental  obligations  being  as  follows : — 

Concord   &  Montreal    $833,503 

Northern       216,104 

Manchester  &  Lawrence   1 12,960 

Nashua  &  Lowell  (in  proportion  to  New  Hamp- 
shire mileage,  36%)  26,280 

Pemigewasset  Valley    32,790 

Concord  &  Portsmouth 25,000 

Wilton     20,400 

Peterboro    15,700 

Suncook  Valley  (readjusted)    8,517 

New  Boston    2,800 

New  Hampshire  lines  of  Boston  &  Lowell  (V-2.  Man- 
chester &  Keene)  30,040 

New    Hampshire    lines    of    Fitchburg    (Cheshire, 

Monadnock,  Peterboro  &  Shirley)    145,000 

New     Hampshire     lines     of     Connecticut     River 

(Ashuelot)    21,000 


Total    $1,490,094 

Deduct  balance  of  earnings  as  above 1,326,940 

Apparent  net  loss  on  New  Hampshire  leased 

mileage    $163,154 

[TWENTY-FOUR] 


It  is  to  be  remembered  that  the  earnings  credited  above 
are  direct  earnings  only,  and  give  the  roads  no  credit  for  value 
as  parts  of  important  through  routes  or  feeders  to  the  main 
lines.  Yet  the  figures  would  seem  in  a  general  way  to  sustain 
the  statement  of  Mr.  Mellen,  while  they  also  furnish  some 
confirmation  of  the  statement  above  quoted  placing  the  sum 
total  of  extravagant  leases,  of  which  the  majority  seem  to  be 
charged  to  New  Hampshire,  at  from  $250,000  to  $300,000. 
They  tend  to  bear  out  also  the  assertion  in  the  New  Hamp- 
shire rate  report  that  "If  the  Boston  &  Maine  is  ever  brought 
to  the  hands  of  a  receiver  it  will  not  be  by  reason  of  the  exist- 
ing New  Hampshire  leases,"  and  they  do  not  indicate  any 
necessity  for  an  attempted  scaling  down  of  rental  obligations- 

The  Company's  Future 

Moreover,  it  would  seem  reasonably  certain  that  the  lease 
obligation  alone  should  not  stand  in  the  way  of  resumption 
of  Boston  &  Maine  dividends,  if  they  are  to  be  passed,  at  a 
fairly  early  date,  and  ultimate  payment  of  something  like 
former  rates.  It  has  been  shown  above  that  stockholders  in 
the  Boston  &  Maine  are  not  simply  holders  of  a  gambling 
chance  on  the  result  of  leases,  but  that  they  are  the  owners  in 
fee  of  a  large  and  valuable  property  aside  from  the  portion  of 
the  plant  operated  under  lease.  It  is  conceded,  also,  that 
some  of  the  important  leases  are  profitable.  Between  these 
two  sources  of  income,  and  considering  constant  expansion  of 
business  and  the  continually  improving  condition  of  the  road,  it 
seems  reasonable  to  regard  the  Boston  &  Maine  as  properly 
a  dividend  payer,  barring  certain  difficulties  of  the  moment 
with  relation  to  operating  expense,  high  cost  of  money,  and 
inability  to  obtain  additional  return  for  the  services  rendered. 
Restoring  of  the  Boston  &  Maine  at  any  early  date  to  some- 
thing of  its  former  investment  status  will  require  at  least  fair 
business  conditions,  and  a  square  deal  on  the  part  of  the  public 
toward  the  company;  but  there  appears  a  reasonably  good 
chance  that  it  will  come,  provided  no  dangerous  experiments 
are  made  by  way  of  separate  control.  Its  coming  will  be 
earnestly  hoped  for,  not  only  by  Boston  &  Maine  investors 
but  by  stockholders  in  the  New  York,  New  Haven  &  Hartford, 
whose  prospective  loss  by  curtailment  of  that  system's  divi- 
dend is  in  good  part  a  result  of  the  New  Haven's  investment 
in  the  Boston  &  Maine  system. 

[TWENTY-FIVE] 


THE   FINANCIAL    POSITION    OF   THE  NEW    YORK, 
NEW    HAVEN    &    HARTFORD    RAILROAD 

For  the  fiscal  year  ended  June  30,  1912,  the  New  York, 
New  Haven  &  Hartford  Railroad  Company  reported  after  the 
payment  of  eight  per  cent  dividends  on  its  $179,583,000  of 
capital  stock,  requiring  $14,315,540,  a  deficit  of  $929,989.  This 
was  in  the  usual  form  of  income  account,  including  the  earn- 
ings of  the  numerous  subsidiary  properties  only  to  the  extent 
of  dividends  paid  to  the  parent  company.  A  consolidated 
income  account  of  the  "New  York,  New  Haven  &  Hartford 
Railroad  System"  taking  in  all  subsidiaries  excepting  the  New 
York,  Ontario  &  Western,  the  Boston  &  Maine  and  the  Maine 
Central,  exhibited  a  surplus  over  the  dividend  of  $305,835. 

Combined  Earnings  of  Properties 

In  view  of  the  question  raised  by  these  figures  as  to 
whether  the  company's  position  should  be  judged  by  its  in- 
come account  as  a  steam  railroad  corporation  or  by  the  con- 
solidated net  earnings  of  all  properties — with  the  exceptions 
noted  —  it  is  of  interest  to  reproduce  here  the  table  of  "sur- 
plus net  earnings  in  excess  of  dividends  paid"  given  in  the 
company's  last  annual  report. 

Surplus  as  Reported  clirTo,lc  tnr  n,- 

for  the  N.Y.,  N.H.  &  ^vft^m 

Hartford  RR.  Co.  Syst{ 

1912 Deficit..*  $903,228      $    305,835 

1911. ..  .Deficit. .  1,267,539      456,712 

1910 1.037,793      2,711,033 

1909 Deficit..  453»6i3      85,606 

1908. ..  .Deficit. .  2,516,692  Deficit...  2,560,866 

1907 2,217,841      1,770,277 

1906 3,718,285      4,506,621 

1905 308,052      901,215 


Total  for  eight  years  . .  .$2,140,898  $8,176,436 

*  In  the  income  account  this  figure  is  $929,989. 

It  should  be  understood  that  in  the  above  showing  the 
description,  "earnings  in  excess  of  dividends  paid,"  means  the 
combined  net  earnings  of  the  system  in  excess  of  dividends 
paid  by  the  parent  New  York,  New  Haven  &  Hartford  com- 
pany, the  dividend  paid  by  the  subsidiaries  to  the  parent  com- 
pany being  eliminated  as  inter-company  transactions. 

[TWENTY-SIX] 


The  Boston  &  Maine  and  Ontario  Investments 

This  style  of  report  has  been  criticized  on  the  ground  that 
while  including  all  net  earnings  of  companies  included  in  the 
"system,"  so-called,  whether  or  not  paid  to  the  parent  company 
in  dividends,  it  includes  also  the  dividends  received  from  the 
investment  in  the  Boston  &  Maine  and  Ontario  &  Western  — 
companies  controlled  but  not  so  included  —  whether  or  not 
these  dividends  have  been  earned.  This  is  a  valid  objection  in 
principle,  but  in  practical  effect  the  method  criticized  has  not 
resulted  in  a  too  favorable  showing,  at  least  so  far  as  concerns 
the  bearing  of  these  two  investments. 

A  statistical  statement  on  this  subject  involves  certain 
debatable  points,  owing  to  the  fact  that  the  New  Haven  first 
acquired  an  interest  in  the  Boston  &  Maine  in  early  1907,  sold 
it  at  the  end  of  the  fiscal  year  1908,  and  re-acquired  it,  through 
the  Boston  Railroad  Holding  Co.,  during  the  following  year. 
It  seems  the  soundest  method,  however,  to  consider  that  the 
New  Haven  has  had  a  Boston  &  Maine  ownership  without 
interruption,  beginning  with  the  fiscal  year  1908.  Employing 
a  forty  per  cent  proportion  for  the  first  two  years  and  since 
then  the  increased  percentage  owned  through  the  Holding 
Company,  that  part  of  the  net  deficit  of  the  Boston  &  Maine, 
1908  to  1912,  inclusive,  corresponding  to  the  New  Haven's 
proportion  of  ownership,  was  $915,229.  On  the  other  hand, 
the  New  Haven's  one-half  proportion  of  the  total  surplus  of 
the  New  York,  Ontario  &  Western  in  the  period  from  1905  to 
1912  was  $1,035,539,  making  a  net  result  favorable  to  the  New 
Haven  of  $120,310.  The  Maine  Central  is  left  out  of  this 
reckoning,  as  it  figures  only  through  the  Boston  &  Maine. 
The  road  has  shown  good  results. 

For  the  fiscal  year  1912,  the  New  Haven's  quota  of  the 
Boston  &  Maine  deficit  was  $253,181,  but  this  was  about  offset 
by  the  company's  proportionate  share,  $236,864,  of  the  New 
York,  Ontario  &  Western  surplus ;  the  difference  adverse  to 
the  New  Haven  being  $16,317. 

It  would  appear  that  assuming  adequate  upkeep  of  all  the 
properties,  steam  railway  and  other,  the  New  Haven  system 
as  a  whole  held  its  own  during  the  1912  fiscal  year  with  the 
8  per  cent  dividend  paid,  but,  as  regards  its  financial  posi- 
tion, made  little  progress. 

[TWENTY-SEVEN] 


The  Company's  Dividend  Policy 

Until  quite  recently,  the  New  Haven  management  has  ad- 
hered to  its  position  that  the  8  per  cent  dividend  rate  should 
be  maintained,  though  that  policy  has  been  many  times  crit- 
icized. The  first  sign  of  a  possible  change  in  this  position 
came  when  a  decision  was  reached,  owing  to  difficulties  in 
the  coal  fields,  to  pass  the  2  per  cent  dividend  on  the  stock 
of  the  New  York,  Ontario  &  Western  for  the  fiscal  year  1912, 
with  no  assurance  of  early  resumption.  It  was  not  conceded 
then  that  the  resulting  stoppage  of  $583,200  of  annual  revenue 
from  this  source  would  imperil  the  customary  8  per  cent  to 
New  Haven  stockholders,  and  such  indeed  might  not  have 
been  the  case  had  business  conditions  in  New  England  ful- 
filled their  promise  at  that  time.  But  the  Ontario  reverse 
proved  one  of  a  series  of  events  which  seem  now  to  have 
about  persuaded  the  directors  that  the  continuance  of  8  per 
cent  after  the  close  of  the  current  fiscal  year  would  be  im- 
prudent. 

One  of  these  developments  was  the  tightening  of  the 
money  market  during  the  fall  of  1912,  in  such  manner  that  in 
refinancing  $30,000,000  of  short-term  obligations  in  November 
the  company  was  obliged  to  incur  additional  interest  charges 
of  about  $525,000  annually  for  the  same  amount  of  money. 
Another  was  the  sudden  reversal  of  business  conditions,  al- 
ready mentioned,  which  in  combination  with  further  increase 
in  operating  cost  —  especially  in  wages  —  has  led  to  a  decrease 
in  net  earnings  compared  with  the  corresponding  period  of  the 
previous  year,  very  nearly  cancelling  by  the  end  of  February 
the  substantial  gain  of  the  July-October  period. 

This  reversal  has  promised  to  recoil  doubly  upon  the 
New  Haven,  for  its  effects  upon  the  controlled  Boston  & 
Maine  system  have  been  so  serious  as  to  make  it  almost  out 
of  the  question  for  that  company  to  continue  even  its  modest 
4  per  cent  dividend  beyond  the  quarterly  payment  on  April  I. 
This  will  not  affect  the  New  Haven's  financial  position  for 
the  current  fiscal  year,  but  subsequently  it  will  mean  a  loss  of 
$875,000  a  year,  in  addition  to  a  carrying  loss  on  the  Boston 
&  Maine  investment  already  estimated,  with  New  Haven 
stock  paying  8  per  cent,  at  $800,000  annually.  Such  a  series  of 
adversities  could  hardly  do  otherwise  than  dishearten  a  little 
the  most  courageous  board  of  directors,  and  it  has  been  virtu- 
[TWENTY-EIGHT] 


ally  announced  that  with  the  first  quarter  of  the  next  fiscal 
year  the  dividend  will  come  down  to  a  six  per  cent  basis ; 
this,  at  least,  unless  in  the  event  of  a  "miraculous"  improve- 
ment in  business  conditions.  For  the  current  year  it  is  fairly 
well  assured  that  the  company  will  report  a  rather  substantial 
deficit. 

Assets  and  Liabilities 

The  Validation  report,  published  two  years  ago  as  the 
outcome  of  a  legislative  measure  for  the  legalizing  in  Massa- 
chusetts of  certain  security  issues,  credited  the  New  Haven 
with  assets  exceeding  all  liabilities,  including  capital  stock, 
of  $101,612,000;  comparing  with  the  surplus  reported  by  the 
company  at  the  end  of  the  fiscal  year  1910  of  *$!4,i96,ooo,  plus 
premiums  on  capital  stock  (not  counted  as  liabilities  in  the 
Validation  report)  of  $20,630,720. 

This  figure  is  subject  to  an  important  modification  with  re- 
spect to  the  Boston  &  Maine  investment,  for  which  the  Valida- 
tion commission  allowed  full  cost  or  book  value,  making  an  ex- 
ception to  its  general  rule  for  the  reason  that  the  investment  was 
acquired  at  such  valuation  under  Legislative  authority  in  this 
State.  From  this  cost  value  there  has  been  a  shrinkage  of  about 
$11,580,000,!  which  would  reduce  the  surplus  figure  as  stated  to 
$90,032,000.  The  principal  factor  in  this  showing  is  the  greatly 
increased  value  of  right  of  way  and  real  estate  over  the  company's 
own  figures.  The  company's  equipment  was  taken  at  depreciated 
value,  but  no  deduction  was  made  for  depreciation  on  track  and 
structures,  estimated  by  the  board's  engineers  at  $16,270,000. 
That  this  was  not  deducted,  however,  was  considered  justified  by 
certain  offsetting  considerations  which  were  discussed  at  length 
in  the  report. 

It  is  to  be  remembered  that  the  Validation  report  had  no 
reference  to  the  company's  current  assets  and  liabilities,  except- 
ing as  these  formed  a  part  of  the  total  assets  and  liabilities.  It 
was  not  concerned  with  the  amount  of  the  company's  resources 

*At  the  end  of  1912  this  was  $12,575,471;  premiums  were 
$32,786,089. 

fThe  decline  from  cost  value  of  holdings  acquired  since  the 
Validation  report  has  been  about  $2,620,000,  making  the  total 
$14,200,000.  This  shrinkage,  however,  is  of  less  practical  importance 
than  the  loss  of  dividend  return  from  the  Boston  &  Maine,  considered 
elsewhere. 

[TWENTY-NINE] 


realizable  in  cash  (which  are  very  considerable),  and  did  not 
touch  upon  the  question  of  current  income  and  outgo.  It  pro- 
vided, however,  an  unbiassed  valuation  for  all  of  the  properties, 
some  of  which  were  radically  scaled  down  'from  the  company's 
own  figures,  and  was  conclusive  as  showing  that  the  company  was 
capitalized  well  within  the  cost  and  value  of  its  properties.  While 
it  included  some  assets  of  a  debatable  character,  it  also  excluded 
many  elements  of  probable  future  value.* 

The  Depreciation  Problem 

From  the  investor's  standpoint  the  Validation  report  is  im- 
portant, also,  as  bearing  upon  the  important  question  of  depre- 
ciation of  various  parts  of  the  property.  It  is  of  vital  importance 
to  know  whether  the  margin  reported  as  available  for  dividends 
is  really  free  and  clear,  after  all  necessary  expenditures  from 
earnings  for  the  maintenance  of  the  property  aside  from  capital 
outlays;  and  this  problem  applies  to  the  properties  of  subsidiar- 
ies as  well  as  of  the  main  company. 

Good  Condition  of  Way  and  Structures 

It  may  be  said  at  once  that  as  to  maintenance  of  way  and 
structure  there  is  no  evidence  of  other  than  a  very  satisfactory 
maintenance.  In  the  seven  years  ended  with  the  fiscal  year  1907, 
the  average  maintenance  expenditure  per  mile  of  main  track 
owned  and  leased  was  $1988.  For  the  five  years  ended  1912, 
the  average  was  $2230.  During  this  time  there  has  been  much 
new  track  and  structure,  which  would  tend  in  the  first  instance 
to  diminish  the  maintenance  requirement,  and  so  increase  the  fa- 
vorable character  of  the  comparison.  Such  an  exhibit  cannot  be 
taken  as  conclusive,  but  it  is  significant  in  connection  with  cer- 
tain official  commendations  of  the  condition  of  the  road,  and  es- 
pecially that  of  the  Validation  report,  in  which  Professor  Swain, 
in  charge  of  the  valuation,  said:  "It  is  the  unanimous  testimony 
of  every  one  concerned  in  this  work,  who  has  examined  the  line 
or  any  part  of  it,  that  the  property  is  maintained  in  remarkably 
good  condition." 

*  These  various  assets  which  are  more  or  less  subject  to  differ- 
ence of  opinion  fully  offset,  in  the  view  of  the  writer,  the  company's 
large  "contingent"  obligations,  few  of  which  seem  likely  to  become 
real  obligations. 

[THIRTY] 


Equipment 

It  is  not  clear  whether  this  approval  referred  without  quali- 
fication to  the  equipment  as  well  as  track  and  structures.  From 
the  fact  that  in  the  aggregate  valuation  of  the  property  a  consid- 
erable deduction  was  made  for  depreciation  of  equipment,  but 
none  for  road  and  structure,  it  would  seem  that  upon  that  point 
some  reservation  was  made.  An  examination  of  the  recent 
maintenance  figures,  therefore,  is  of  interest.  It  appears  that  for 
the  seven-year  period  ended  1907  the  average  allowance  for  re- 
pairs, renewals,  and  depreciation  of  locomotives  was  $1841 ;  for 
the  five  year  period  ended  1912  it  was  $2043.  The  showing  as 
to  rolling  stock  is,  on  its  face,  not  so  favorable.  For  the  first 
period  the  average  per  freight  car  was  $68.10,  and  per  passenger 
car,  $532.  For  the  second  period  the  figures  were,  respectively, 
$59.03  and  $492. 

The  last  two  comparisons,  which  alone  appear  unfavorable 
among  eight  of  similar  character  which  we  have  made  for  the 
New  Haven  and  Boston  &  Maine  systems,  need  not  be  taken  as 
proof  of  undue  saving  in  these  accounts.  They  are  probably  ac- 
counted for  in  considerable  degree  by  the  fact  that  a  large  quan- 
tity o'f  new  equipment  has  been  placed  on  the  road,  requiring  at 
first  a  rather  low  allowance  for  repairs.  This  is  especially  true 
of  freight  cars.  In  view  of  the  large  per  diem  payments  which 
had  been  required  for  the  use  of  freight  cars  of  foreign  lines,  a 
matter  made  especially  serious  by  the  New  Haven's  position  as 
a  terminal  road,  the  company  set  out  some  five  years  ago  to  in- 
crease heavily  its  own  freight  car  equipment.  This  has  been 
carried  so  far  that  an  outgo  of  $628,860  on  car  hire  account  in  the 
year  1908 — the  excess  of  payments  to  other  roads  over  rentals 
received  for  the  company's  own  cars  on  other  lines — was  changed 
into  a  credit  balance  in  1912  of  $472,409.  With  respect  to  loco- 
motives, the  fact  of  new  equipment  would  tend  to  improve  a 
showing  already  favorable  upon  its  'face.  As  to  cars,  both  pas- 
senger and  freight,  it  undoubtedly  qualified  any  conclusion  which 
might  be  drawn  from  figures  apparently  adverse. 

Without  the  most  careful  engineering  examination,  it  can- 
not be  concluded  that  the  figures  as  they  stand  are  either  favor- 
able or  the  reverse.  Comparisons  with  other  roads  are  necessar- 
ily defective,  owing  to  the  great  variety  of  conditions,  and  this 
applies  with  about  equal  force  both  to  comparisons  per  unit  and 
comparisons  per  mile  of  service.  In  the  course  of  a  long  study 

[THIRTY-ONE] 


of  this  subject  from  available  figures,  the  writer  has  reached  no 
other  conclusion  than  that  the  New  Haven's  equipment  mainte- 
nance about  corresponds  on  the  whole  to  average  practice,  con- 
sidering all  conditions  as  to  the  nature  and  performance  of  the 
equipment.*  For  the  1911  fiscal  year  the  company's  charges 
seemed  a  little  low  in  comparison  with  certain  roads  operated 
under  similar  conditions;  but  whatever  ground  of  criticism  may 
have  existed  at  that  time,  the  condition  has  since  considerably 
improved.  In  the  1912  fiscal  year  as  compared  with  1911,  the 
locomotive  maintenance  per  engine  increased  from  $2155  to 
$2305;  freight  car  maintenance  per  car,  from  $56.50  to  $68.68; 
passenger  car  maintenance,  from  $502  to  $528.  It  may  be  noted 
also  that  the  company  has  recently  adopted  the  policy  of  "scrap- 
ping," on  a  larger  scale  than  before,  some  of  the  light  and  ineffi- 
cient locomotives  representing  a  part  of  its  inheritance  from  the 
past;  and  this  policy  prevails  likewise  on  the  Boston  &  Maine. 

Trolley   Properties 

With  regard  to  subsidiary  properties,  referring  chiefly  to 
the  trolley  lines  and  steamboats,  the  best  testimony  available  re- 
mains that  of  the  expert  accountants  of  the  Commission  on  Com- 
merce and  Industry,  reporting  in  1908.  This  report  compared 
the  maintenance  on  the  trolley  lines  with  that  on  certain  other 
lines  operating  under  similar  conditions,  and  concluded  that  the 
New  Haven's  figures  were  so  much  higher  as  to  indicate  the  in- 
clusion of  considerable  sums  for  reconstruction  and  improve- 
ments, and  that  the  earnings  had  not  been  overstated,  but  un- 
derstated. The  comparisons  mentioned  were  with  the  former 
Old  Colony  and  Boston  &  Northern  lines  (Massachusetts 
Electric).  Since  the  time  of  that  report  maintenance  charges 
on  the  latter  properties  have  somewhat  increased.  From  the 
figures  available  it  is  not  possible  to  draw  final  conclusions, 
but  there  is  some  interest  in  a  comparison  so  far  as  it  goes. 
The  comparisons  are  made  on  the  basis  of  percentage  of  main- 
tenance to  gross  earnings,  including  in  the  case  of  the  Con- 
necticut Co.  the  earnings  from  gas,  light  and  water  properties 

*  This  is  apart  from  the  fact  that  certain  other  companies  report 
very  substantial  surplus  earnings  over  dividend  requirements,  (which 
the  New  Haven  has  not  done  of  late  years)  such  surplus  being  in 
effect  more  or  less  of  a  provision  against  depreciation  of  the  prop- 
erties. 

[THIRTY-TWO] 


(now  separate),  which  for  the  three  earlier  years  contributed 
an  average  of  11.5%  of  gross. 

Mass.  Electric           Connecticut  Co.       Rhode  Island  Co. 
1912 I/.00% 20.00% 16.60% 

1911 16.21  (not  published) 

1910 *i6.52  17.03     13.08 

1909 15.00  12.80     11.13 

1908 13.70  16.91     15.68 

*  Nine  months  ended  June  30. 

Taking  these  figures  in  connection  with  the  statement  of 
the  accountants  above  referred  to,  it  would  seem  at  least  that 
there  is  no  distinct  evidence  of  under  maintenance,  and  that 
at  present  the  showing  is  a  good  one.  Yet  it  is  not  wholly 
clear,  on  the  other  hand,  that  the  conditions  since  the  official 
report  referred  to  have  remained  equally  as  favorable  as  those 
before.  To  clear  away  any  reasonable  doubts  in  the  minds  of 
investors,  the  company  should  allow  complete  presentation  of 
all  relevant  evidence  on  the  subject 

Steamships 

This  suggestion  applies  still  more  to  the  matter  of  the 
steamboat  properties.  On  this  subject  the  accountants'  report 
was  less  favorable,  finding  that  for  the  1907  year  the  com- 
panies spent  for  repairs  4  per  cent  of  the  value  of  the  steam- 
ships, and  that  this  amount  did  not  sufficiently  provide  for 
depreciation  as  well  as  repairs. 

It  was  noted,  however,  that  any  inadequacy  on  this  point 
was  more  than  offset  in  the  entire  income  account  of  the  New 
Haven  by  the  liberal  charges  against  current  income  for  in- 
terest on  cost  of  construction  on  properties  not  ready  for 
operation,  which  might  legitimately  have  been  charged  to 
property  accounts. 

The  latter  policy,  it  should  be  observed,  has  been  con- 
tinued since  the  time  of  this  report.  In  the  1911  annual  re- 
port of  the  company  reference  was  made  to  such  charges  — 
amount  not  stated  —  in  connection  with  work  on  the  New 
York,  Westchester  &  Boston,  the  New  York  Connecting  Rail- 
way, and  certain  other  projects;  and  in  the  last  report  it  is 
stated  that  the  interest  to  June  30,  1912,  on  account  of  the 
Westchester  road  amounted  to  $1,675,489.  It  is  also  true  that 

[THIRTY-THREE] 


certain  additions  have  been  made  to  various  reserves  of  the 
parent  and  subsidiary  companies ;  officially  stated  at  $3,533,022 
for  the  eight  years  1905  to  1912,  and  augmented  by  interest 
earnings  of  the  funds  thus  increased. 

But  these  matters,  while  proper  enough  to  consider,  are 
not  directly  related  to  the  steamship  properties.  So  far  as 
concerns  actual  maintenance  allowance  for  the  steamships, 
there  is  no  information  at  hand  to  lead  to  a  conclusion  other 
than  that  of  the  accountants. 

In  the  rather  brief  reports  for  the  steamship  companies 
the  item  of  repairs  is  not  separated  from  other  operating  ex- 
penses. A  little  more  light  is  to  be  had  from  the  Validation 
report,  which,  although  it  does  not  segregate  repairs,  shows 
for  the  New  England  Navigation  Company  and  the  Hartford 
&  New  York  Transportation  Company  a  total  allowance 
for  "depreciation  and  other  deductions"  for  the  five  years  from 
1906  to  1910  of  $561,986.  This  is  3.20  per  cent  of  the  book 
valuation  of  the  steamship  properties,  $17,569,000,  and  6.45 
per  cent  of  the  reduced  valuation  in  the  Validation  report, 
$8,710,000.  It  would  seem  that  on  this  subject,  as  well  as  the 
matter  of  the  trolley  lines,  somewhat  more  complete  informa- 
tion should  be  made  public  by  the  company,  showing  either 
that  the  properties  have  been  fully  maintained  or  that  any 
deficiency  is  adequately  offset  in  other  ways.  More  definite 
information  may  be  anticipated,  perhaps,  from  the  forthcoming 
report  of  the  Interstate  Commerce  Commission. 

In  view  of  the  reservations  made  in  the  foregoing  dis- 
cussion, it  should  be  clearly  understood  that  none  of  the  facts 
or  figures  cited  are  placed  before  the  reader  in  a  critical  spirit, 
but  that  the  effort  has  been  simply  to  point  out  what  seem  to 
be  the  weak  points  in  the  company's  position,  if  any,  not  fully 
revealed  by  well-known  facts  as  to  net  earnings  and  dividend 
requirements.  It  should  be  realized,  also,  that  even  though 
some  ground  of  criticism  may  exist  as  to  certain  phases  of  the 
depreciation  policy,  stockholders  need  feel  no  great  concern 
regarding  them  in  view  of  the  large  excess  of  all  assets  over 
liabilities  as  indicated  by  the  Validation  report. 

Financial  Results  of  Subsidiaries 

Certain  criticisms  of  which  much  use  is  made  in  current 
discussions  of  the  company  relate  to  its  ambitious  expansion 
[THIRTY-FOUR] 


program  during  the  administration  of  President  Mellen.  It  is 
pointed  out  that  in  this  period  the  company's  total  capital 
stock  and  funded  debt  has  increased  from  $57,487,000  to 
$384,650,000;  and  that  of  the  total  property  investment  of 
$419,573,000,  some  55  per  cent  represents  properties  other  than 
steam  railways  owned.  This  in  itself  would  not  be  of  neces- 
sity a  valid  criticism  from  the  investor's  standpoint ;  but  stress 
is  laid  also  upon  the  fact  that  these  outside  investments,  as 
a  whole,  have  resulted  in  a  considerable  carrying  loss,  com- 
paring the  income  from  them  with  the  amount  of  money  an- 
nually paid  out  by  the  company  as  interest  and  dividends  on 
the  money  raised  to  purchase  the  controlled  properties. 

Reference  to  this  phase  of  the  situation  has  already 
been  made  in  connection  with  the  Boston  &  Maine  and  New 
York,  Ontario  &  Western  investments.  In  a  previous  dis- 
cussion, also,  the  writer  has  called  attention  to  carrying  losses 
on  the  trolley  and  steamship  properties  estimated,  at  a  fair 
average  cost  for  the  money,  at  about  $2,500,000  for  the  fiscal 
year  1911,  though  a  little  less  in  1912.  But  it  must  be  remem- 
bered that  estimates  of  this  kind  are  based  in  part  upon  the 
8  per  cent  dividend  rate  now  being  paid  upon  the  company's 
nearly  $180,000,000  of  capital  stock,  and  that  if  as  now  antici- 
pated, the  dividend  is  reduced  to  6  per  cent  annually,  some  of 
this  loss  to  the  company  will  automatically  cease.  Such  a 
reduction  will  save  the  company's  treasury  about  $3,592,000 
annually  —  an  amount  about  equivalent  to  the  carrying  loss 
on  the  principal  subsidiaries  for  the  1912  fiscal  year. 

It  is  a  further  aspect  of  the  case  that,  as  mentioned  at  the 
beginning  of  this  review  of  the  New  Haven's  condition,  the 
showing  is  a  better  one  when  account  is  taken  of  the  actual 
earnings  of  the  subsidiaries  rather  than  of  the  amount  paid 
in  dividends  to  the  parent  company.  For  the  last  fiscal  year 
the  excess  of  earnings  over  dividend  payments  thus  reported 
was  $1,236,000,  and  barring  the  temporary  loss  threatened 
through  the  stoppage  of  the  Ontario  and  Boston  &  Maine 
dividends,  there  appears  reason  to  believe  that  the  showing 
will  improve  from  year  to  year. 

Opinions  vary  as  to  the  company's  policy  in  acquiring 
various  subsidiaries,  especially  the  trolley  properties.  The 
fact  remains  that  they  were  acquired,  for  reasons  the  manage- 
ment at  the  time  believed  valid,  and  the  steps  then  taken 

[THIRTY-FIVE] 


cannot  well  be  retraced.  It  is  a  condition,  not  a  theory,  which 
confronts  the  management  and  the  stockholders.  Every  effort 
is  being  made,  plainly,  to  put  the  subsidiaries  on  a  more  pay- 
ing basis.  Earnings  have  shown  good  increase  from  year  to 
year,  and  with  the  growth  and  prosperity  of  the  territory  they 
should  continue  to  gain  and  eventually  assist  in  the  restora- 
tion of  the  now  menaced  8  per  cent  dividend-  Another  factor 
which  will  help  will  be  accruing  returns  from  certain  expendi- 
tures temporarily  unproductive,  such  as  the  New  York,  West- 
chester  &  Boston  investment. 

The  Outlook 

In  what  is  said  above,  there  has  been  no  desire  to  depict  the 
New  Haven  as  other  than  a  strong,  virile  corporation.  The  com- 
pany is  suffering  from  some  mistakes  of  judgment,  both  in  the 
past  and,  perhaps,  recently,  and  from  a  certain  amount  of  bad 
luck,  in  common  with  other  railroads,  regarding  operating  ex- 
penses. But  it  is  aggressively  managed,  it  serves  a  remarkable 
territory ;  it  is  increasing  its  business  and  the  facilities  for  hand- 
ling it,  and  has  many  elements  of  promise  for  the  future.  Gross 
earnings  from  steam  railway  operations  increased  from  $40,132,- 
ooo  in  the  fiscal  year  1901  to  $64,993,000  in  1912 ;  a  gain  of  about 
62  per  cent  with  an  increase  of  6^2  per  cent  in  main  track 
owned  and  leased,  and  a  somewhat  faster  rate  of  growth,  it 
will  be  noted,  than  that  of  the  Boston  &  Maine. 

The  writer  believes  that  the  dividend  should  be  reduced  by 
at  least  the  two  per  cent  anticipated,  and  that  the  lower  rate 
should  continue  in  force  until  the  Boston  &  Maine  is  more  nearly 
on  its  feet  and  other  subsidiaries  are  giving  a  better  return.  In 
justice  to  stockholders,  and  especially  those  who  have  subscribed 
to  new  stock  in  recent  years  on  the  eight  per  cent  dividend  basis, 
the  customary  rate  should  be  restored  when  reasonably  possible. 
When  this  time  will  come  is  a  question  depending  largely  upon 
business  conditions.  It  has  seemed  on  all  the  evidence  that 
the  conservative  dividend  policy  now  outlined  for  both  the 
New  Haven  and  the  Boston  &  Maine,  and  fully  reflected  in 
share  values,  makes  fairly  good  provision  against  any  probable 
further  recession  in  business.  No  one  can  foretell  with  assur- 
ance but  that  more  severe  times  will  be  witnessed  than  are  now 
anticipated,  in  which  case  policies  should  be  shaped  accord- 
ingly. But  there  is  also  a  chance  of  conditions  materially 
better  than  anticipated. 
[THIRTY-SIX] 


THE  PUBLIC  AND  THE  NEW  ENGLAND 
RAILROADS 

Our  review  of  the  financial  position  of  the  two  properties 
in  question  shows  in  general — 

1 I )  That  the  conditions  do  not  indicate  any  necessity  for  the 
reorganization  of  the  Boston  &  Maine  Railroad  or  attempted  re- 
duction of  rental  obligations,  and  that  in  the  event  of  suspension 
of  common  stock  dividends  a  fairly  early  renewal  should  be  pos- 
sible, provided  only  that  the  road  is  not  improperly  handicapped.* 

(2)  The  New  York,  New  Haven  &  Hartford  shows  a  strong 
underlying  position.    It  is  apparently  in  a  position  to  pay  6  per 
cent  dividends,  and  to  restore  the  rate  eventually  to  8  per  cent, 
the  appropriate  time  for  such  action,  however,  being  partly  con- 
tingent upon  the  renewal  of  Boston  &  Maine  dividends. 

Here,  again,  we  are  assuming  an  attitude  of  reason  on  the 
part  of  the  public.  Indeed,  in  any  effort  under  current  condi- 
tions to  analyze  the  dividend  position  of  a  railroad,  the  inquirer 
is  somewhat  at  a  loss  whether  to  emphasize  chiefly  the  question, 
"Is  the  business  status  of  the  company  such  as  to  permit  the  pay- 
ment of  dividends?"  or  "Will  the  public  allow  dividends  to  be 
earned?" 

The  Question  of  Equity 

In  view  of  the  tone  of  certain  current  discussions  in  this 
vicinity,  it  would  seem  possibly  in  violation  of  the  conventional- 
ities to  hold  that  the  public  is  under  any  possible  obligation  to- 
ward investors  in  railroads.  This  would  not  justify  the  exclusion 
of  an  argument  plainly  in  the  interest  of  justice  and  fair  play. 
But  as  this  phase  of  the  subject  has  been  somewhat  neglected, 
to  say  the  least,  in  most  comments  upon  the  New  England 
situation,  it  may  be  well  to  add  two  further  suggestions  to  the 
proposals  along  this  line  advanced  at  the  beginning  of  our 
discussion. 

First,  the  idea  that  stockholders  are  entitled  to  a  given  rate 
of  return  is  by  no  means  a  novelty,  considering  the  country  as  a 
whole.  Various  decisions  of  courts  and  public  service  commis- 
sions have  contained  opinions  as  a  proper  rate  of  return.  In 

*  Certain  reports  have  mentioned  two  years  as  the  anticipated 
time  of  suspension.  It  is  not  clear,  however,  how  this  can  be  defi- 
nitely forecasted  in  view  of  the  uncertainties  of  business  conditions 
and  other  factors. 

[THIRTY-SEVEN] 


one  of  the  Minnesota  rate  cases  the  rate  named  was  7  per 
cent,  and  in  other  instances  higher  percentages  have  been  held 


proper.* 


Fair  Dealing  in  the  Interest  of  the  Public 


And  aside  from  the  matter  of  equity,  there  is  a  large  consid- 
eration as  to  the  interest  of  the  public  itself.  Good  railroads 
mean  the  raising  of  capital.  This  can  be  accomplished,  within 
limits  of  prudence,  only  by  the  issue  of  capital  stock  as  well  as 
of  bonds.  The  issue  of  capital  stock  in  addition  to  the  amount 
outstanding,  and  for  any  satisfactory  price,  means  that  the  com- 
pany must  be  paying  an  adequate  dividend,  and  that  such  divi- 
dend is  protected  by  some  margin  of  earnings  in  excess  of  the 
amount  required  for  its  payment.  Moreover,  a  railroad  which 
cannot  pay  dividends  has  a  poor  market  for  its  bonds.  Exac- 
tions upon  the  railroads  which  impair  their  dividend-paying 
power  mean  not  simply  a  violation  of  justice,  but  also  that  the 
railroads  themselves  will  remain  stationary  or  retrograde,  and 
the  public  in  the  end  will  suffer. 

The  Point  at  Issue 

The  question  which  now  presents  itself  to  the  investors  and 
public  of  New  England — not  the  only  question,  but  second  to 
none  in  importance — is  this:  Are  the  owners  of  New  England 
railroads,  in  view  of  their  recent  and  prospective  losses,  entitled 
to  a  change  in  public  policy  toward  them? 

It  has  been  urged  at  another  point  that  an  adequate  return 
upon  a  capital  stock  investment  includes  a  compensation  for  risk ; 
also  that  when  the  policy  of  the  public  for  a  long  series  of  years 
has  made  possible  the  establishing  of  a  given  rate  of  return,  within 
reason,  that  fact  should  be  considered  in  the  formulation  of  a 
present  policy;  but  that  if  certain  dividends  have  been  paid  at 
the  expense  of  proper  maintenance  of  the  property  such  divi- 
dends are  to  that  extent  excessive,  and  the  amount  of  such  ex- 
cess should  be  considered  in  judging  the  claims  of  the  investor 
upon  the  public.  Now  how  do  these  principles  apply,  broadly, 

*  It  would  not  seem  that  railroads  should  be  limited  to  definite 
percentages;  but  beyond  a  certain  fair  return  the  interest  of  the  public 
may  require  that  further  dividends  shall  depend  upon  increased  effi- 
ciency and  economy  of  operation,  rather  than  upon  rates. 

[THIRTY-EIGHT] 


in  the  case  of  the  Boston  &  Maine  and  New  York,  New  Haven 
&  Hartford  railroads? 

The  Case  of  the  Boston  &  Maine 

First,  as  to  the  Boston  &  Maine.  Dividend  payments  for 
seventy-five  years  have  averaged  about  7^4  Per  cent.  They  have 
been  as  high  as  10  per  cent  in  some  years,  and  were  at  7  per  cent 
as  recently  as  1908.  For  about  two  years  now  stockholders  have 
received  only  4  per  cent,  which  has  not  been  earned,  and  the  signs 
point  to  a  suspension  of  dividends  altogether.  It  has  appeared 
that  for  a  long  time  the  property  was  doubtless  under-maintained, 
but  that  for  some  six  years  past  great  improvement  has  been 
made  in  this  respect,  increasing  expenditures  being  made  from 
earnings  on  maintenance  accounts ;  that  much  new  capital  has 
been  invested  by  stockholders  in  improvements,  such  capital  in- 
cluding large  amounts  paid  in  as  premiums  upon  new  stock  is- 
sues; also  that  large  borrowings  have  been  made  for  the  purpose 
of  rehabilitating  the  property,  the  effect  of  the  interest  charges 
so  incurred  being  felt  now  in  threatened  cessation  of  dividends 
and  a  radically  lower  value  for  the  stock. 

Whether  the  deficiency  in  maintenance  in  past  years  has  been 
made  up  by  outlays  from  earnings  is  a  question  to  be  answered, 
conclusively,  only  by  the  most  complete  engineering  and  account- 
ing examination.  But  on  the  face  of  the  returns  it  would 
seem  that  the  deficiency  has  been  made  up  in  considerable 
degree ;  and  stockholders  are  to  be  asked  to  make  still  further 
sacrifices  toward  this  end. 

The  question,  then,  comes  to  this  specific  form:  Are  Bos- 
ton &  Maine  common  stockholders  entitled,  when  necessary  re- 
adjustments are  completed,  at  least  to  a  seven  per  cent  divi- 
dend ?  And  if  so,  in  what  ways  should  the  public  cooperate  in 
making  that  dividend  possible  ?  To  the  first  part  of  this  question 
the  writer  is  disposed  to  answer,  "Yes."  The  second  query  has 
been  partially  answered  in  the  introductory  part  of  this  review, 
and  is  considered  further  below. 

As  to  the  New  Haven 

Next,  with  respect  to  the  New  Haven.  This  company  paid 
10  per  cent  for  twenty  years,  9  for  one  year,  and  for  the  last 
nineteen  years  the  rate  has  been  8  per  cent.  The  higher  dividend 

[THIRTY-NINE] 


of  earlier  years  was  probably  in  good  part  at  the  expense  of 
maintenance,  and  there  appears  no  strong  reason  for  considering 
it  under  present  conditions.  But  it  is  quite  reasonable  to  ask, 
whether  stockholders  are  not  entitled  to  the  customary  8  per 
cent — barring  a  temporary  reduction  due  to  losses  on  the  Bos- 
ton &  Maine  and  Ontario  investments,  and  certain  necessary  re- 
adjustments. 

With  respect  to  losses  on  account  of  these  two  investments 
in  other  railroads,  it  is  plain  that  New  Haven  stockholders  have 
no  claim  to  receive  compensation  for  such  losses  through  the 
earnings  of  their  own  company.  Their  claim  is  simply  that  of 
the  New  Haven  company  as  a  stockholder  in  the  controlled 
roads,  in  which  capacity  that  company  should  be  regarded  on  the 
same  basis  as  other  stockholders.  So  in  so  far  as  restoration  of 
the  New  Haven  dividends  to  the  former  rate  may  depend  upon 
resumption  of  Boston  &  Maine  dividends — in  the  event  of  sus- 
pension— New  Haven  stockholder's  are  dependent,  so  far  as 
public  policy  is  concerned,  upon  the  attitude  of  the  public  toward 
the  controlled  company.  That  subject  has  been  considered 
above. 

Outside  Investments  as  a  Factor 

It  is  somewhat  unfortunate  that  the  question  has  been  com- 
plicated also  by  the  absorption  into  the  company  of  a  variety  of 
properties  other  than  those  required  for  steam  railway  trans- 
portation (in  which  the  company's  Long  Island  Sound  steamship 
lines  should  properly  be  included).  This  applies  especially  to 
the  trolley  properties.  The  fact  that  certain  losses  have  been 
incurred  in  some  of  these  enterprises  lends  capital  to  critics  of 
the  road,  and  permits  the  argument  that  no  concessions  are 
called  for  on  the  part  of  the  public  to  make  up  for  such  losses. 

This,  in  principle,  is  true.  But  before  deciding  that  the  mat- 
ter has  any  important  bearing  upon  the  question  at  issue,  it  is 
necessary  to  consider  carefully,  the  precise  extent  and  nature  of 
such  losses.  It  is  apparent  from  the  Validation  report  that  the 
present  valuation  of  certain  properties  is  less  than  the  cost  value, 
though  such  deficiency  is  more  than  compensated  by  increased 
value  of  other  parts  of  the  system.  But  upon  the  evidence  of 
actual  net  earnings  of  subsidiaries  as  shown  above,  as  distin- 
guished from  dividends  received  from  them,  it  would  not  appear 
that  the  income  position  of  the  company  has  been  vitally  affected ; 

[FORTY] 


and  if  this  is  the  case,  then  the  matter  of  losses  or  apparent  losses 
in  subsidiaries  need  not  enter  into  the  problem  as  regards  the 
just  attitude  of  the  public  toward  the  road. 

Our  reasoning  comes  substantially  to  this:  An  eight  per 
cent  dividend  rate  has  been  established  and  paid  for  a  long 
period.  The  property,  apparently,  has  been  sufficiently  main- 
tained, or  deficiencies  in  maintenance  in  certain  respects  have 
been  compensated  in  other  ways.  But  this  cannot  be  fully  deter- 
mined in  the  light  of  present  evidence,  and  inquiry  should  be  made 
to  show  all  the  facts.  The  customary  dividend  rate  seems  about 
to  be  reduced,  owing  largely  to  the  anticipated  suspension  of 
dividends  on  the  controlled  Boston  &  Maine  system.  This  mat- 
ter does  not  enter  into  the  relations  of  the  public  and  the  New 
Haven.  But  if  the  time  comes  when  income  is  resumed  upon 
the  Boston  &  Maine  investment,  it  would  seem  on  the  evidence 
at  hand  that  no  obstacles  should  be  placed  by  the  public  in  the 
way  of  resumption  of  the  customary  rate  of  the  New  Haven 
dividend  if  the  general  prosperity  upon  the  company's  lines 
should  suggest  such  action. 


REASONABLE    LINES    OF    POLICY 

At  the  beginning  of  this  review,  it  was  urged  that  the 
public  in  fulfilling  its  share  of  the  mutual  responsibility  be- 
tween the  community  and  the  public  service  corporation 
should  use  reason  and  moderation  in  its  power,  through  legis- 
lation, over  service  and  facilities ;  that  it  should  permit  the 
adjustment  of  rates  in  accordance  with  the  cost  of  the  service 
and  the  amount  of  the  investment;  and  that  it  should  coop- 
erate in  all  reasonable  ways  toward  the  most  efficient  and 
economical  conduct  of  the  business.  Considered  with  relation 
to  the  New  England  roads,  the  first  of  these  suggestions  was 
held  to  apply  especially  to  certain  proposed  expenditures  in 
the  vicinity  of  Boston ;  the  second,  to  the  question  of  improv- 
ing the  New  England  transportation  status  by  readjustment 
of  rates  in  such  manner  as  to  compensate  somewhat  in  the 
company's  revenues  for  heavily  increased  cost  of  the  service; 
the  third,  to  the  joint  operation  of  the  New  York,  New  Haven 
&  Hartford  and  Boston  &  Maine  systems.  These  topics  will 
now  be  more  fully  considered. 

[FORTY-ONE] 


Expenditures  at  Boston 

It  is  not  proposed  to  review  the  long  series  of  legislative 
complications  having  to  do  with  proposed  transportation  im- 
provements at  Boston,  but  simply  to  consider  these  proposals 
briefly  from  the  financial  standpoint.  They  include  the  follow- 
ing: A  tunnel  connection  between  the  north  and  south  sides 
of  the  city,  with  numerous  terminal  rearrangements  and  per- 
haps a  new  central  passenger  station ;  a  tunnel  under  the 
harbor  to  East  Boston ;  and  electrification  throughout  the 
Metropolitan  area. 

The  probable  cost  of  these  improvements  can  be  stated 
only  in  the  most  general  way.  A  bill  which  has  been  before 
the  last  two  Legislatures  providing  for  a  lease  of  the  Boston  & 
Maine  to  the  New  Haven  (regarding  which  see  objections 
elsewhere)  requires  that  expenditures  shall  be  made  for  such 
purposes  by  the  two  roads  not  exceeding  in  the  aggregate 
$80,000,000,  and  not  exceeding  in  any  one  year  $16,000,000. 

For  the  cost  of  a  north  and  south  tunnel  the  figure  has 
been  mentioned  of  $18,000,000,  but  this  is  little  more  than  a 
guess  in  the  absence  of  a  decision  as  to  the  number  of  tracks, 
location,  the  question  of  a  central  passenger  station,  and  other 
matters. 

With  respect  to  electrification,  the  Joint  Board  on  Metro- 
politan Improvements  (1910)  estimated  the  cost  for  the  Met- 
ropolitan area  at  $40,000,000 —  including  the  Boston  &  Albany 
—  but  subject  to  additions  if  electrification  were  to  apply  to 
all  freight  as  well  as  passenger  traffic.  The  figure  reported 
for  the  Boston  &  Maine  was  $18,889,000 ;  for  the  New  Haven, 
$13,862,000,  the  latter  amount,  however,  being  for  passenger 
traffic  only  and  not  including  changes  in  tracks,  structures, 
and  road-bed. 

A  leading  advocate  of  electrification  has  recently  criti- 
cized these  estimates  as  "most  exaggerated,"  citing  as  evi- 
dence the  statement  of  a  New  Haven  official  giving  $20,000,000 
as  the  cost  of  electrification  work  completed,  in  progress,  or 
authorized,  on  various  parts  of  that  system,  including  a  greater 
amount  of  single  track  than  that  contained  in  the  Metropolitan 
area.  There  appeared  every  reason  to  believe  that  the  esti- 
mates above  referred  to  were  made  in  good  faith,  though 
under  difficulties  as  to  just  what  plans  and  methods  would 
be  adopted.  It  is  quite  possible  that  progress  has  been  made 
[FORTY-TWO] 


in  the  last  three  years  toward  more  economical  methods. 
Probably  of  more  importance,  however,  as  accounting  for 
the  difference  between  the  two  sets  of  figures,  is  the  fact  that 
the  last-named  cover  work  including  several  rather  long 
stretches  of  road  in  comparatively  open  sections  of  country. 
Such  work  would  hardly  figure  on  the  same  basis  as  electri- 
fication of  very  numerous  short  lines  in  a  congested  Metro- 
politan area,  with  much  greater  density  of  traffic. 

The  Tunnel  Proposal 

As  to  the  business  utility  of  these  improvements.  They 
will  not,  plainly,  bring  additional  earnings  to  the  roads  to  any 
material  extent;  but  this  in  itself  is  no  final  objection.  The 
north  and  south  tunnel  is  a  much  needed  improvement,  and 
would  seem  to  promise  material  operating  economies,  pro- 
vided it  were  used  not  only  for  long  distance  trains  and 
freight  but  also  for  frequent  operation  of  through  north  and 
south  suburban  passenger  trains.  These  economies  would 
be  effected  through  elimination  of  terminal  and  transfer  ex- 
pense, and  reduced  idleness  of  equipment.  In  what  proportion 
the  saving  would  offset  the  annual  expense  involved  is  an- 
other question,  with  every  indication  that  a  considerable  finan- 
cial burden  would  remain.  Such  burden  might  not  be  a 
serious  matter  under  the  improved  financial  condition  of  the 
roads  which  should  exist  by  the  time  the  tunnel  would  be 
built  and  ready  for  use.  But  such  improved  conditions  are 
not  assured,  and  the  matter  should  be  approached  with  great 
caution,  especially  as  to  the  danger  of  placing  the  tunnel 
project  ahead  of  other  improvements  which  may  be  more 
vitally  needed,  such  as  equipment  and  freight  handling  facili- 
ties. A  harbor  tunnel  would  not  seem  likely  to  compensate 
at  all  sufficiently  for  the  expense. 

Electrification 

The  electrification  problem,  from  the  financial  standpoint, 
is  somewhat  involved.  The  Joint  Board  above  referred  to  re- 
ported, in  an  argument  of  conspicuous  ability,  against  any 
compulsion  being  placed  upon  the  railroads  to  electrify  their 
lines  throughout  the  Metropolitan  district.  It  was  shown  con- 
vincingly that  electrification  of  some  twenty  radiating  main 
and  branch  lines  for  short  distances  into  the  suburbs,  with 

[FORTY-THREE] 


continuance  of  steam  power  beyond  the  electric  zone,  would 
mean  not  economy  but  added  cost,  and  would  simply  entail 
a  heavy  financial  burden  upon  the  roads,  meaning  either  a 
drastic  cut  in  net  earnings  from  the  suburban  service  or  large 
increases  in  suburban  rates. 

It  was  noted  in  this  report,  however,  that  electrification 
would  be  required  through  a  tunnel  and  to  convenient  points 
beyond  in  each  direction,  and  attention  was  called  to  the  more 
favorable  financial  aspect  of  electrification  of  through  lines. 
Since  this  report  was  made  the  New  Haven  system  has  pushed 
the  work  of  electrification  from  New  York  to  New  Haven, 
and  at  the  Boston  end  has  made  necessary  provision,  legal  and 
financial,  for  carrying  out  the  work  between  Boston  and  Prov- 
idence. Presumably  it  will  be  a  matter  of  no  very  long  time 
before  the  whole  Shore  Line  route  between  New  York  and 
Boston  will  be  electrically  operated,  and  whenever  a  tunnel 
at  Boston  materializes  the  system  will  naturally  be  continued 
to  points  on  the  Portland  Division  at  least. 

Outside  of  this  natural  and  proper  development  there  is 
no  good  reason,  under  present  conditions,  for  forcing  sub- 
urban electrification.  The  executive  head  of  the  Boston  & 
Albany  Railroad  has  testified  that  such  electrification  upon 
his  line  would  mean  an  annual  net  loss  in  its  operation  of  at 
least  one-half  million  dollars  per  year.  How  it  would  affect 
other  roads  is  mostly  matter  for  surmise,  but  the  Boston  & 
Maine  at  least  is  in  no  position  to  stand  such  an  outlay,  and 
will  not  be  in  such  a  position  for  a  long  time.  Its  financial 
condition  demands  imperatively  that  capital  outlays  shall  be 
kept  down  to  the  lowest  figure  consistent  with  efficiency  of 
service,  and  so  far  as  possible  shall  be  confined  to  improve- 
ments directly  productive  of  revenue  or  capable  of  paying  for 
themselves  in  the  economies  effected. 

The  Question  of  Rates 

The  second  topic  in  this  series  concerns  the  attitude  of  the 
public  toward  the  adjustment  of  rates  in  accordance  with 
higher  operating  costs.  This  question  involves  large  economic 
and  social  questions  —  the  latter  pertaining  especially  to  the 
compensation  of  labor  —  which  are  outside  the  scope  of  a 
purely  investment  study. 

It  has  been  repeatedly  mentioned  in  this  review  that  the 

[FORTY-FOUR] 


New  England  roads,  in  common  with  railroads  elsewhere, 
have  had  to  deal  with  sharply  rising  costs  of  operation, 
maintenance,  and  betterments,  including  higher  cost  of  many 
necessities  but  bearing  most  sharply  in  the  matter  of  wages. 
For  example,  the  report  of  the  Boston  &  Maine  for  the 
fiscal  year  1911  stated  that  during  this  period  the  company 
was  obliged  to  pay  additional  wages  to  the  amount  of 
$2,468,457  for  the  same  class,  character,  and  quantity  of  labor, 
or  an  amount  greater  by  about  twenty-five  per  cent  than  the 
entire  amount  paid  in  dividends  in  that  year.  It  was  in  the 
same  year  that  common  stock  dividends  were  reduced  from  a 
six  to  a  four  per  cent  basis.  The  New  Haven  has  been  simi- 
larly situated.  The  rising  tendency  of  wages  continues ;  the 
locomotive  engineers  have  recently  received  an  advance,  the 
case  of  the  firemen  is  in  process  of  arbitration  at  the  time  of 
this  writing,  and  the  trainmen  also  are  demanding  advances. 
It  will  serve  to  emphasize  the  importance  of  these  develop- 
ments to  note  that  in  the  1912  fiscal  year  the  wages  paid 
to  Boston  &  Maine  enginemen  and  trainmen  amounted  to 
$7,378,000,  or  16  per  cent  of  gross  earnings.  And  the  demand 
for  higher  pay  extends  to  various  other  departments. 

Higher  Costs  of  Railroading 

In  his  recent  testimony  with  respect  to  electrification, 
above  referred  to,  Vice-President  Hustis  of  the  New  York  Cen- 
tral (in  charge  of  the  Boston  &  Albany)  gave  certain  facts  so 
vital  in  their  bearing  on  this  subject  that  they  are  herewith 
reproduced : — 

Expenses  for  material  and  labor  have  increased  tremen- 
dously during  this  period  (1900  to  1912)  ;  fuel,  for  instance,  one 
of  the  largest  single  items  of  expense,  being  19  per  cent  of  the 
total  operating  expenses,  has  increased  approximately  25  per 
cent  in  cost  per  ton.  Passenger  cars,  which  in  1900  cost 
$6,751,  to-day  cost  $15,750,  an  increase  of  133  per  cent.  Freight 
cars,  which  in  1900  cost  $550,  to-day  cost  $1,025,  an  increase  of 
86  per  cent.  Native  ties,  which  in  1900  cost  45  cents,  to-day 
cost  65  cents,  an  increase  of  44  per  cent.  The  cost  of  lumber 
has  increased  about  50  per  cent.  Passenger  locomotives,  which 
in  1900  cost  $13,800,  to-day  cost  $23,700,  an  increase  of  72  per 
cent.  Engine  nouses  for  the  smaller  engines  cost  $2,000  per 
stall  in  1900;  to-day  the  cost  is  $7,000  per  stall;  an  increase  of 
$150,000  for  a  thirty-stall  house. 

While  there  have  been  some  economies  in  operation,  par- 
ticularly in  the  freight  service,  by  reason  of  the  use  of  heavier 

[FORTY-FIVE] 


power,  it  has  not  been  at  all  commensurate  with  the  increase 
in  the  cost  of  equipment.  So  far  as  the  passenger  service  is 
concerned  the  increased  weight  of  passenger  equipment  has 
almost  entirely  offset  the  increase  in  the  weight  of  locomotives. 
During  this  period  wages  have  likewise  increased,  and 
this  has  been  particularly  true  during  the  past  several  years 
when  increased  wages  and  improved  conditions  have  resulted 
in  increased  compensation  as  follows :  Engineers,  35  per  cent ; 
firemen,  39  per  cent;  conductors,  34  per  cent;  trainmen,  42 
per  cent ;  yardmen,  54  per  cent. 

No  Compensation  in  Rates 

In  the  12-year  period  covered  by  the  figures  of  Mr.  Hustis 
given  above,  general  rates  have  shown  no  increase.  The  average 
revenue  per  ton  of  freight  per  mile  of  the  New  Haven  system 
in  1901  was  1.479  cents;  in  1912  it  was  1.371.  The  Boston  & 
Maine  reported  for  1901  an  average  of  1.158;  in  1912,  of  1.089. 
Owing  to  certain  causes  related  to  the  proportion  of  low- 
grade  to  high-grade  freight,  this  comparison  is  not  to  be  taken 
as  absolute,  but  it  is  sufficiently  conclusive  that  freight  rates 
as  a  whole  have  not  advanced,  but  rather  declined.  During 
the  same  period  the  average  revenue  per  passenger  per  mile 
on  the  New  Haven  has  declined  from  1.763  cents  to  1.720;  on 
the  Boston  &  Maine  there  has  been  a  slight  advance ;  from 
1.763  cents  to  1.782. 

The  question  of  revenue  is  not  exclusively  a  question  of 
rates.  It  involves  problems  concerning  the  expansion  or  con- 
traction of  shipments  in  given  lines  with  alterations  in  rates, 
of  so  fixing  the  rates  as  to  attract  competitive  business,  and 
others  too  intricate  for  consideration  here.  The  net  returns, 
also,  are  affected  by  the  matter  of  efficient  and  economical 
operation.  But  a  condition  like  that  reviewed  above,  coupled 
with  facts  elsewhere  reviewed  as  to  the  impairment  of  the 
companies'  dividend  position,  seems  fairly  conclusive  evi- 
dence that  the  rate  situation  now  existing  requires  some 
change.  It  is  not  so  much,  necessarily,  a  question  of  raising 
all  rates,  but  of  general  readjustment,  levelling  up  and  not 
down  in  the  case  of  any  inequalities,  and  having  in  view  some 
moderate  increase  in  total  revenues- 

The  Outlook  for  Rate  Readjustments  in  New  England 

The  Interstate  Commerce  Commission  is  to  undertake  a 
process  of  physical  valuation  of  railways  under  Act  of  Con- 

[FORTY-SIX] 


gress.  This  work  appears  likely  to  occupy  three  or  four  years. 
Meantime  it  is  assumed,  with  how  much  justification  is  un- 
certain, that  permission  for  any  general  advance  in  rates, 
refused  two  years  ago,  will  be  held  in  abeyance.  But  in 
case  that  the  condition  in  New  England  should  seem  to  call 
especially  for  some  addition  to  revenues,  there  are  circum- 
stances which  make  it  seem  possible  that  this  territory  might 
receive  some  consideration  before  the  laborious  valuation 
process  has  been  concluded. 

One  reason  for  this  statement  is  the  fact  that  the  Inter- 
state Commerce  Commission  is  just  completing  an  exhaustive 
inquiry  into  the  New  England  railway  situation  in  all  phases, 
including  the  financial  and  physical  condition  of  the  roads. 
In  this  it  has  been  assisted  by  the  results  of  the  Validation 
inquiry  with  respect  to  the  New  Haven,  and  for  the  Boston 
&  Maine,  the  results  of  the  thorough  New  Hampshire  rate 
investigation. 

Another  circumstance  is  the  recent  tendency  of  the  New 
England  States  to  begin  to  work  together  for  the  good  of  the 
whole  territory  —  a  movement  which  has  taken  form  in  the 
so-called  New  England  Railroad  Conference  appointed  by  the 
various  Governors,  and  which  seems  likely  to  lead  to  some 
permanent  form  of  joint  commission.  Any  such  board  should 
give  this  matter  the  most  serious  attention,  with  a  view  pos- 
sibly to  presenting  the  case  of  New  England  before  the  Fed- 
eral authorities. 

Interstate  Rates  and  Other 

This  relates  to  interstate  charges.  Under  the  conditions 
which  have  recently  come  about,  however,  with  respect  to  the 
large  power  of  the  Interstate  Commerce  Commission  over  in- 
terstate rates,  charges  within  State  limits  are  more  or  less 
rigidly  restricted  by  those  applying  between  States,  and  the 
way  to  any  general  advance  in  New  England,  so  far  as  it  may 
seem  advisable,  lies  through  the  consent  of  the  Interstate 
board. 

In  view  of  the  wide  attention  attracted  by  the  recent  rate 
investigation  in  New  Hampshire,  it  has  doubtless  been  as- 
sumed that  the  position  of  that  State  against  releasing  the 
Boston  &  Maine  from  the  unusual  statutory  restrictions  on 
New  Hampshire  rates  is  a  seriously  adverse  factor  in  the 

[FORTY- SEVEN] 


Boston  &  Maine's  position.  Such  does  not  seem  to  be  the 
case,  even  though  the  restrictions  in  question  are  held  by  the 
New  Hampshire  Supreme  Court  to  apply  to  interstate  as  well 
as  intra-state  business. 

A  computation  by  the  writer  from  the  figures  given  by 
the  New  Hampshire  Public  Service  Commission  indicates 
that  after  making  all  deduction  for  lines  not  involved,  joint 
rates  not  involved,  and  other  factors,  the  amount  of  New  Hamp- 
shire business  in  any  way  affected  by  the  matters  at  issue 
is  equal  to  only  a  little  over  five  per  cent  of  the  annual  gross 
earnings  of  the  company.  A  billing  test  conducted  by  the 
Commission  indicated  that  the  amount  collected  in  1911  in 
excess  of  legal  maximum  charges  was  equal  to  .295  of  one 
per  cent  of  the  gross  earnings  for  the  year,  1.365  per  cent  of 
net  operating  revenues,  and  .309  of  one  per  cent  on  the  capital 
stock.  The  position  of  New  Hampshire  will  be  an  important 
factor,  however,  in  any  general  effort  to  readjust  rates  more 
favorably  to  the  company,  especially  as  the  question  most 
seriously  affects  the  Boston  &  Maine  system. 

It  does  not  need  emphasis  that  the  matter  of  rate  advances 
must  be  approached  with  great  care  not  to  affect  adversely 
both  the  interests  of  the  territory  and  the  revenues  of  the 
roads,  by  placing  New  England  at  a  disadvantage  compared 
with  other  sections.  On  this  account,  it  is  to  be  hoped  that 
whatever  changes  might  occur  in  New  England  rates,  so  far 
as  these  could  affect  the  competitive  interests  of  the  territory, 
would  correspond  to  advances  in  the  near  future  by  railroads 
generally.  To  some  extent,  however,  the  matter  could  be 
locally  treated,  and  there  should  be  no  hesitation  in  such  a 
policy.  The  public,  of  course,  does  not  wish  to  pay  more. 
But  this  does  not  affect  the  question  of  justice,  and  there  is, 
furthermore,  the  public's  own  interest  to  consider.  The  com- 
munity wants  more  and  better  transportation.  How  will  this 
be  had  without  allowing  the  railroads  a  living  profit? 

The  Joint  Control  of  the  New  Haven  and  Boston  &  Maine 

We  have  now  considered  the  two  suggestions  advanced 
at  the  beginning  of  this  discussion,  with  reference  to  relieving 
the  roads  from  excessive  capital  outlays,  and  possible  im- 
provement of  revenue  by  readjusting  rates.  The  final  topic 
of  this  series  relates  to  cooperation  by  the  public  in  regard  to 

[FORTY-EIGHT] 


efficient  and  economical  operation  of  the  properties,  and  the 
specific  proposal  made  toward  this  end  is  cessation  of  de- 
mand for  the  separation  of  the  Boston  &  Maine  Railroad  from 
the  control  of  the  New  York,  New  Haven  &  Hartford.  It  was 
originally  proposed  in  this  discussion  to  consider  this  matter 
at  considerable  length,  with  relation  to  all  possibilities  having 
to  do  with  State  control  of  the  Boston  &  Maine  or  control 
by  business  interests  independent  of  the  New  Haven.  The 
dangers  intended  to  be  pointed  out,  however,  have  been  in 
good  part  so  conclusively  demonstrated  by  the  events  of  the 
last  few  weeks  as  to  make  such  argument  largely  superfluous. 
The  public  has  now  had  an  opportunity,  in  the  light  of  facts 
already  reviewed  in  detail  concerning  the  Boston  &  Maine's 
financial  position,  to  judge  with  more  accuracy  than  was  pre- 
viously possible  just  what  a  task  would  confront  a  new  man- 
agement of  that  property,  whether  public  or  other,  and  what 
would  be  the  chances  of  minority  stockholders.  But  as  the 
matter  of  separate  control  is  still  before  the  public  in  various 
ways,  as  for  instance  in  some  half  a  dozen  bills  before  the 
present  Legislature,  it  seems  necessary  to  consider  it  in  cer- 
tain general  phases. 

Some  First  Principles 

At  the  outset,  it  should  be  remembered  that  we  are  dis- 
cussing these  questions  from  the  financial  and  investment 
standpoint.  In  a  consideration  of  this  kind,  many  important 
questions  as  to  railway  management,  traffic,  operation,  and 
service  must  be  sparingly  treated,  and  especially  is  this  true 
as  to  matters  local  or  sectional  rather  than  general.  Yet  no 
inference  should  be  drawn  that  in  the  view  of  the  writer  the 
standpoint  of  the  banker  or  the  investor  is  distinct  from  that 
of  the  public;  much  less,  hostile  to  it 

The  community  demands  good  railroads  —  properties  well 
constructed  and  maintained,  well  equipped  as  to  all  facil- 
ities, managed  with  a  maximum  of  efficiency,  a  minimum  of 
friction  and  delay.  By  its  railroads,  in  marked  degree,  a  com- 
munity is  known.  Backward,  badly  equipped  roads  give  evi- 
dence of  a  backward  community.  Well  equipped,  efficient 
roads  testify  to  prosperity,  enterprise,  progress.  And  the 
quality  of  the  railroad  depends  in  the  main  upon  the  strength 
of  its  treasury ;  upon  the  ability  of  the  company  to  spend 

[FORTY-NINE] 


earnings  upon  the  road,  to  build  up  reserves,  and  to  raise  new 
capital. 

Their  Application  to  New  England 

At  the  beginning  of  this  review  it  was  sought  to  show, 
briefly,  certain  reasons  why  our  New  England  roads  are  not 
in  a  stronger  financial  position.  For  such  a  condition  the 
reasons  advanced  included,  it  will  be  recalled,  the  following: — 
an  extravagant  dividend  policy  in  past  years,  owing  to  early 
prosperity  and  failure  to  realize  future  demands;  the  hap- 
hazard development  of  our  railway  map  through  a  multi- 
plicity of  small  companies ;  natural  conditions  contributing 
to  high  construction  and  operating  costs ;  and  recent  large 
advances  in  operating  expense,  notably  in  wages,  and  inabil- 
ity to  make  material  advances  in  rates. 

All  of  this,  it  would  seem,  points  to  imperative  need,  in 
the  interest  of  investors  and  public  alike,  of  effecting  every 
economy  reasonably  possible  in  the  management  and  opera- 
tion of  our  railroads.  And  if  such  economies  may  be  effected 
by  joining  the  two  principal  systems  under  one  management, 
eliminating  unnecessary  duplications  of  service  and  delays  in 
traffic  interchange,  this  would  appear  a  strong  argument  for 
such  policy. 

The  Question  of  Service 

It  must  be  remembered  that  changes  such  as  these  in 
railway  operation  are  not  measures  of  economy  only,  but 
measures  also  of  increased  efficiency  in  service. 

Having  listened  to  many  days  of  evidence  at  the  recent 
hearings  of  the  Interstate  Commerce  Commission,  the  writer 
is  aware  of  the  widespread  complaint  as  to  service  in  Boston 
&  Maine  territory  since  the  New  Haven  control  of  that  system ; 
nor  does  he  seek  to  exonerate  the  management  for  any  errors 
of  operating  or  traffic  policy  which  may  have  been  in  part  re- 
sponsible. But,  without  prejudging  the  findings  of  the  Com- 
mission, it  may  be  said  that  much  evidence  has  been  sub- 
mitted also  on  behalf  of  the  New  Haven  management,  attrib- 
uting these  troubles  largely  to  certain  inevitable  complications 
with  growth  of  traffic  beyond  facilities ;  and  to  what  might 
be  called  readjustment  pains  incident  to  the  efforts  of  the 
New  Haven  to  reform  the  operating  methods  of  the  Boston 

[FIFTY] 


&  Maine  in  line  with  improved  methods  lately  introduced 
upon  its  own  system.  These  difficulties  would  not  appear  of 
permanent  character. 

The  Boston  &  Maine  Needs  the  New  Haven 

Nor  is  the  greater  potential  efficiency  of  the  joint  opera- 
tion the  final  argument.  In  a  period  like  the  present,  even 
more  than  under  better  conditions,  it  is  of  the  greatest  im- 
portance to  the  Boston  &  Maine,  and  to  New  England  so 
far  as  affected  by  conditions  on  that  road,  that  Boston  &  Maine 
credit  should  be  reinforced  by  the  credit  of  the  New  Haven. 
And  if  the  two  roads  are  to  be  required  before  many  years  to 
spend  many  millions  of  capital  upon  tunnel  connections  and 
other  improvements  at  Boston,  this  is  still  more  true-  Indeed, 
the  Boston  &  Maine  is  plainly  unable  now  to  incur  such  ex- 
penditures alone,  without  large  financial  assistance  by  the 
Commonwealth. 

The  New  Haven,  as  compared  with  the  Boston  &  Maine, 
has  vital  advantages  in  territory  and  traffic.  The  region  served 
by  its  lines  has  a  greater  density  of  population,  many  times 
over,  than  that  of  the  Boston  &  Maine.  The  New  Haven 
serves  New  York  City,  Connecticut,  Rhode  Island,  and  the 
southern  portion  of  Massachusetts.  The  Boston  &  Maine 
serves  northern  Massachusetts,  New  Hampshire,  and  parts  of 
Vermont  and  Maine ;  also  touching  New  York  State  and 
Canada.  The  population  density  of  Rhode  Island  is  508.5  per 
square  mile;  of  Massachusetts,  418.8;  of  Connecticut,  231.3. 
These  three  rank  respectively  as  first,  second,  and  fourth 
among  the  States  of  the  Union;  with  New  Jersey  as  third. 
Now  compare  the  northern  group ;  New  Hampshire,  47.7 ; 
Vermont,  39;  Maine,  24.8-  Moreover,  so  far  as  the  evidence 
serves,  the  southern  or  New  Haven  portion  of  New  England 
is  advancing  at  a  somewhat  better  rate  than  the  northern  or 
Boston  &  Maine  portion  —  aside  from  some  of  the  principal 
cities  which  the  Boston  &  Maine  serves,  of  which  several  are 
reached  by  both  companies.  It  is  true  that  the  Boston  & 
Maine  receives  a  larger  proportion  of  through  business ;  but 
this  is  hardly  a  strong  reliance,  considering  that  the  tonnage 
so  secured  is  less  than  five  per  cent  of  its  total. 

To  put  the  matter  in  more  concrete  form,  the  New  Haven 
system  proper  earned  in  the  last  fiscal  year  $31,048  gross  per 

[FIFTY-ONE] 


mile  of  road,  compared  with  $20,492  for  the  Boston  &  Maine ; 
and  $9,102  net,  compared  with  $4,858. 

If  Continued  New  Haven  Control,  in  What  Form? 

What  if  the  joint  control  is  to  continue?  Should  it  re- 
main in  the  present  form,  through  the  Boston  Railroad  Hold- 
ing Company  ?  Should  it  take  the  form  of  a  lease  ?  Or  should 
the  two  companies  be  consolidated? 

The  Present  Status 

Much  worse  policy  can  be  imagined  than  that  of  con- 
tinuing the  present  status.  Under  existing  conditions  the 
New  Haven  has  complete  executive  authority  over  the  Boston 
&  Maine,  the  president  and  Boston  vice-president  of  the 
former  holding  corresponding  offices  in  the  controlled  com- 
pany ;  the  traffic  and  operating  officials  of  the  two  roads  work 
in  harmony,  and  it  is  possible  for  the  New  Haven  to  work  out 
in  the  main,  provided  only  that  it  has  reasonable  assurance 
of  being  left  in  control,  its  plans  for  unifying  and  coordinating 
the  two  systems.  There  is  nothing  to  prevent  the  requiring 
of  the  two  roads  to  be  connected  by  tunnel  at  Boston,  and 
such  other  improvements  as  are  necessary.  Yet  the  Common- 
wealth retains  its  power,  if  in  the  end  matters  should  go  badly, 
to  take  over  the  Boston  &  Maine  control.  The  arrangement 
does  not  work  injustice  to  Boston  &  Maine  minority  stock- 
holders, who  receive  what  the  road  can  pay  them  and  who  still 
stand  a  chance,  despite  their  misfortunes,  of  better  things  in 
the  future. 

The  Lease  Method 

The  report  of  the  Commission  on  Commerce  and  Indus- 
try in  1908  contained  the  following: 

A  lease  of  the  Boston  &  Maine  Railroad  to  the  New 
Haven  is  not  desired  by  the  latter ;  and  if  there  were  no  other 
objections  it  is  enough  to  point  out  that  it  would  be  inex- 
pedient to  burden  the  New  Haven  Company  with  the  fixed 
charge  of  a  heavy  rental. 

Since  this  report  was  written,  the  situation  has  not 
changed  excepting  in  such  a  way  as  to  justify  more  thor- 
oughly the  attitude  of  the  commission.  It  is  not  to  be  assumed 
that  there  are  no  arguments  favoring  the  plan.  A  lease  would 

[FIFTY-TWO] 


facilitate  the  process  of  unification,  eliminating  necessity  for 
joint  rates  and  increasing  the  possibilities  of  through  service, 
with  resulting  economies  in  switching  and  transfer  cost.  For 
illustration,  it  would  end,  presumably,  the  labor  complications 
now  involved  in  running  through  trains  with  the  same  train 
crew  from  one  system  to  another. 

But  the  objections  are  serious.  Under  present  condi- 
tions, with  the  Boston  &  Maine  practically  out  of  the  dividend- 
paying-class,  it  is  of  course  out  of  the  question  that  the  New 
Haven  would  think  of  assuming  a  guarantee  upon  the  stock. 
The  question  may  possibly  recur  when  conditions  improve, 
but  every  effort  should  be  resisted  toward  any  such  sweeping 
extension  of  the  lease  system  in  a  territory  where  it  is  already 
somewhat  overdone.  It  would  be  radically  against  the  inter- 
ests of  New  Haven  stockholders,  at  least  in  principle,  and  if 
the  property  can  be  placed  in  a  dividend  paying  position  again, 
it  would  not  be  in  the  long  run,  probably,  in  the  interest  of 
stockholders  in  the  Boston  &  Maine. 

As  to  Consolidation 

The  final  possibility  is  consolidation  outright;  Boston  & 
Maine  stock  to  be  converted  into  New  Haven  at  an  agreed 
ratio,  or,  preferably,  the  shares  of  both  companies  to  be  con- 
verted into  stock  of  a  new  corporation,  to  be  incorporated 
primarily  in  Massachusetts  under  such  a  title  as  the  New 
England  Railway  Lines.  With  the  legislative  practicability 
of  this  plan,  considering  other  States  concerned  as  well  as 
Massachusetts,  this  study  is  not  concerned.  Moreover,  it  is 
certain  that  no  such  proposal  will  have  serious  attention  under 
existing  conditions.  The  question  is  one  of  principles,  and, 
if  we  may  venture  to  use  the  word,  ideals. 

So  regarded,  the  consolidation  plan  would  seem  on  all 
available  evidence  the  best  one,  for  public  and  investors  alike. 
It  would  remove  every  obstacle,  of  a  legal  or  operating  na- 
ture, to  the  complete  unification  of  the  two  systems,  and  to 
the  development  of  the  highest  efficiency  in  railway  service 
that  the  resources  of  the  New  England  territory  can  support. 
It  would  unite  the  credit  of  the  two  roads,  thus  providing  the 
best  possible  basis  for  the  financing  of  improvements.  It  would 
place  upon  the  shoulders  of  the  united  system  the  burden  of 
expensive  changes  at  Boston.  It  would  avoid  injustice  to  the 

[FIFTY-THREE] 


stockholders  either  of  the  New  Haven  or  the  Boston  &  Maine 
system  —  assuming  only  an  equitable  basis  for  conversion  of 
stock.  New  Haven  stockholders  would  not  be  shouldered 
with  a  losing  lease.  Boston  &  Maine  stockholders  would  be 
left  with  a  good  chance  of  recovering  their  losses  with  future 
development  and  prosperity  of  the  unified  roads. 

A  New  England  Railway  System 

Advocacy  of  a  consolidation  does  not  mean  favoring,  un- 
qualifiedly, New  Haven  control  of  the  Boston  &  Maine,  or  even 
New  Haven  control  of  the  New  Haven  system  itself,  as  now 
exercised ;  but  rather  a  Boston,  Massachusetts  and  New  Eng- 
land control  of  an  all  New  England  railway  system.  With 
proper  provisions  and  safeguards  at  the  outset  it  is  difficult 
to  believe  that  Massachusetts,  possessed  of  more  than  half 
the  population  and  fully  half  the  wealth  of  New  England, 
located  centrally  in  the  territory  of  the  combined  system,  and 
having  within  its  limits  a  larger  percentage  of  the  mileage 
of  that  system  than  any  other  State,  would  not  be  able  to 
protect  adequately  the  interests  of  Boston  and  the  Common- 
wealth. 

The  further  argument  applies  that  the  present  minority 
stockholders  in  the  Boston  &  Maine  would  become  a  voting 
element  with  full  rights  in  the  new  corporation,  instead  of 
remaining  a  powerless  minority  or  being  relegated  to  the 
merely  investment  position  of  stockholders  in  a  leased  road. 
Moreover,  by  exercising  previous  to  consolidation  its  power 
to  take  over  the  securities  of  the  Boston  Railroad  Holding 
Company,  the  Commonwealth  if  it  desired  could  secure  the 
control  of  a  considerable  quota  of  the  stock  of  the  new  com- 
pany, placing  it  with  such  business  interests  as  would  be 
likely  to  look  out  especially  for  the  interests  of  Boston  and 
northern  New  England-  For  conveniently  accomplishing  this 
purpose,  with  suitable  protection  to  the  Commonwealth,  it 
might  be  advisable  to  retain  in  existence  the  machinery  of  the 
Boston  Railroad  Holding  Company. 


[FIFTY-FOUR] 


THE   FINANCING   OF   THE  BOSTON  &  MAINE 
An  Obstructed  Stock  Issue 

While  the  Boston  &  Maine  Railroad  shows  a  condition 
inherently  sound,  as  urged  elsewhere,  the  company  is  in  an 
awkward  position  as  regards  the  raising  of  new  capital.  Many 
improvements  are  desired.  There  is  a  floating  debt  now 
amounting  to  $22,000,000,  consisting  of  two  one-year  loans 
of  respectively  $12,000,000  and  $10,000,000.  The  first,  due 
June  10  of  this  year,  represents  the  outlay  for  purchase  of  the 
Worcester,  Rochester  &  Nashua  Railroad;  subscription  to 
the  company's  pro  rata  share  (about  half)  of  a  Maine  Central 
stock  issue  of  $5,004,300,  purchase  of  new  stock  of  leased  lines 
for  the  financing  of  improvements  upon  the  same,  and  other 
capital  expenditures.  The  second,  due  Feb.  3,  1914,  has  been 
put  out  as  a  temporary  measure  to  provide  for  subscription 
to  still  another  issue  of  Maine  Central  stock,  refunding  of 
certain  bonds,  and  various  improvements  and  equipment  pur- 
chases now  under  way. 

For  the  purpose  of  making  definite  provision  for  such 
outlays,  the  stockholders  at  the  last  annual  meeting  author- 
ized the  issue  of  $10,663,700  of  new  stock  and  $7,500,000  of 
bonds.  The  stock  issue  is  now  indefinitely  delayed  by  the 
severe  decline  in  the  price  of  the  shares  on  the  market;  the 
bond  issue  by  certain  legal  complications  outside  the  Com- 
monwealth. 

Assuming  the  adjustment  of  difficulties  in  other  States, 
there  is  no  serious  objection  to  the  issue  of  these  bonds,  if 
a  satisfactory  market  can  be  found  for  them.  Their  amount 
will  not  cause  the  funded  debt  to  exceed  materially  the  amount 
of  the  capital  stock  and  premiums,  to  which,  until  recently,  the 
company  was  in  theory  restricted  by  Massachusetts  law. 
Moreover,  it  happens  fortunately  that  by  a  very  recent  change 
in  a  law  never  any  too  wise*  the  company  will  be  able  to 

*  The  provision  that  to  legalize  its  bonds  as  savings  bank  in- 
vestments a  railroad  must  have  paid  in  dividends  in  cash  an  amount 
equal  to  not  less  than  four  per  cent  per  annum  on  its  capital  stock 
in  each  fiscal  year  for  the  five  years  next  preceding  the  investment. 
The  idea  that  payment  of  dividends  is  a  test  of  financial  strength  is 
a  curious  fallacy  —  not  confined  to  New  England  but  unfortunately 
characteristic  —  which  is  in  part  responsible  for  the  Boston  &  Maine's 

[FIFTY-FIVE] 


suspend  dividends  if  necessary  for  a  period  not  exceeding  two 
years,  without  throwing  out  of  Massachusetts  savings  banks 
bonds  previously  issued. 

Dangers  of  Further  Bond  Output 

But  beyond  this  issue  the  company  should  not  go  in  in- 
creasing its  debt,  until  more  money  has  been  invested  in  the 
company's  stock ;  and  this  regardless  of  any  legal  restrictions  or 
the  removal  of  the  same.  Bonds  so  issued  would  be  a  doubt- 
ful investment.  Intentions  to  keep  the  company  solvent  and 
to  meet  all  charges  may  be  ever  so  good,  and  if  no  mis-steps 
are  made  the  writer  believes  that  this  can  be  done.  But  there 
are  too  many  uncertainties  in  the  situation  to  justify  any  in- 
vestor in  putting  a  dollar  into  any  further  Boston  &  Maine 
bond  issue  without  first  demanding  that  it  shall  be  matched 
by  a  dollar  invested  by  the  owners  of  the  road. 

It  may  be  argued  that  money  invested  by  bondholders 
would  bring  a  return  sufficient  to  meet  the  interest  charges, 
but  this  does  not  follow.  Too  many  things  are  being  de- 
manded of  the  road  which  do  not  promise  such  return.  If 
money  can  be  raised  by  stock  issue  to  provide  for  such  out- 
lays, there  is  a  reasonable  certainty  that  the  bond  investment 
will  be  sufficiently  revenue-producing  —  or  that  it  will  give 
equivalent  advantage  in  operating  economies.  But  otherwise 
there  is  no  such  certainty,  under  existing  provisions  of  the  law. 

As  to  a  Stock  Issue  "at  Par" 

What  then?  Shall  the  company  try  to  put  out  its  pro- 
posed ten  millions  of  new  stock?  The  market  price  of  Boston 
&  Maine  at  this  writing  is  about  70.  The  law  forbids  a  stock 
issue  at  less  than  par.  Of  course  there  could  be  possibly  only 
one  buyer  —  the  New  Haven.  That  company  would  be  ex- 
pected to  take  its  pro  rata  share  of  a  little  more  than  half,  or 
possibly,  in  the  assured  absence  of  other  stockholders'  sub- 
scriptions, the  entire  amount.  No  such  transaction  should  be 

present  position.  The  amount  earned  available  for  dividends  is  the  real 
test.  Demanding  the  payment  of  a  given  rate,  without  even  specifying 
that  the  amount  must  be  earned  after  all  proper  charges,  means  simply 
that  in  the  face  of  difficulty  the  company  will  weaken  its  financial  posi- 
tion to  keep  its  bonds  in  the  savings  banks,  as  the  Boston  &  Maine  has 
recently  done.  Such  a  law  protects  stockholders,  not  bondholders.  It 
cannot  protect  stockholders  indefinitely,  and  in  the  end  it  is  bad  for  all 
concerned. 
[FIFTY-SIX] 


allowed,  even  if  the  New  Haven  were  willing,  which  it  evi- 
dently is  not.  It  would  mean  practically  a  free  gift  of  cor- 
porate funds,  to  the  excess  of  par  value  over  the  real  value. 
It  should  render  the  New  Haven  directors  liable  for  the  debts 
of  that  company,  to  the  extent  of  such  gift.  It  should  be  re- 
sisted by  New  Haven  stockholders,  if  necessary  by  legal 
means. 

The  One  Thing  to  Do 

There  is  one  conclusion,  and  one  only.  The  Legislatures  of 
Massachusetts,  New  Hampshire  and  Maine  should  grant  per- 
mission for  the  Boston  &  Maine  to  issue  stock  at  whatever 
discount  is  necessary  from  the  par  value.  The  company  could 
then  prudently  issue  bonds  to  the  amount  of  cash  actually  re- 
ceived from  such  issue,  but  no  more  under  present  conditions. 
It  will  be  protested,  of  course,  that  allowing  a  stock  issue 
below  par  would  be  "a  departure  from  settled  policy"  and  so 
on.  But  such  policy  should  give  way,  if  necessary,  to  the  re- 
quirements of  sane  finance.  Moreover,  that  policy  has  in- 
volved one  feature  which  provides  the  most  ample  reason  for 
the  departure  now  proposed.  For  many  years  the  public 
authorities,  the  company,  and  investors,  equally  blinded  to  the 
real  condition  of  the  road,  cooperated  in  the  issue  of  new 
Boston  &  Maine  stock  at  heavy  premiums.  Thirteen  years 
ago,  in  accordance  with  an  act  of  the  Legislature,  the  company 
issued  new  stock  at  190.  Seven  years  ago  an  offering  was 
made,  and  mostly  taken  by  stockholders,  at  165.  If  it  now 
becomes  necessary,  in  order  to  extricate  the  road  from  an 
embarrassing  financial  position,  to  allow  stock  to  be  issued  at 
perhaps  a  twenty-five  point  discount  instead  of  a  premium, 
no  hesitation  should  be  had  in  adopting  this  perfectly  logical 
corollary  of  the  former  method,  at  least  to  the  extent  that  such 
discount  would  be  within  the  limits  of  the  company's  previous 
receipts  from  premiums. 

Certain  dangers  must  be  considered,  to  be  sure.  It  might 
be  urged,  for  example,  that  if  the  Boston  &  Maine  should  be 
compelled  to  add  a  stock  liability  to  its  balance  sheet  of  over 
$10,000,000,  matching  it  with  cash  to  perhaps  only  three- 
fourths  of  that  amount,  the  result  would  be  to  wipe  out  the 
surplus  and  substitute  a  deficit.  This  difficulty  is  apparent 
only.  Under  the  accounting  rules  of  the  Interstate  Commerce 
Commission,  the  company  would  be  able  to  charge  off  the  dis- 

[FIFTY-SEVEN] 


count  against  premiums  received  on  previous  issues.  Such 
premiums  are  stated  in  the  company's  balance  sheet  at 
$6,501,620. 

A  point  of  real  importance  is  that  if  such  an  offering  were 
made  it  might  remain  in  part  unsubscribed-for ;  an  unpleasant 
situation.  To  avoid  this,  any  permission  granted  to  issue 
stock  below  par  should  provide  that  such  issue,  or  at  least 
that  part  of  it  in  excess  of  the  New  Haven's  share,  should  be 
protected  by  an  underwriting  satisfactory  to  the  authorities. 

It  should  not  be  considered  for  a  moment  that  such  an 
issue  would  be  an  injury  to  holders  of  the  existing  stock.  In- 
stead, by  providing  the  one  safe  way  out  of  the  company's 
financial  perplexity,  it  should  help  them. 

Temporary  Borrowings  Should  be  Reduced 

It  may  be,  indeed,  that  the  company's  officers  will  see  no 
immediate  necessity  for  such  a  step,  believing  it  possible  to 
re-finance  temporarily  the  company's  large  floating  debt  until 
conditions  look  more  promising.  But  it  is  practically  cer- 
tain that  such  renewed  borrowings  will  be  at  increased  rates 
of  interest,  while  through  an  issue  of  stock  and  supplementary 
issue  of  bonds,  the  interest  charge  could  be  substantially  re- 
duced. Moreover,  the  floating  debt  is  too  large  for  prudence. 

It  has  been  suggested  also,  with  a  semblance  of  author- 
ity, that  the  company  may  undertake  to  secure  a  large  quan- 
tity of  additional  freight  equipment  through  the  issue  of 
equipment  trust  certificates,  possibly  to  the  amount  of  some 
$16,000,000. 

At  first  glance  this  plan,  even  without  the  preliminary  of 
a  stock  issue,  would  have  something  to  commend  it.  Money 
raised  by  equipment  certificates  can  be  used  for  no  other  pur- 
pose, and  so  is  virtually  certain  to  be  income-producing.  This 
is  not  the  case  with  the  proceeds  of  a  general  bond  issue. 
Moreover,  a  special  argument  exists  in  this  instance  in  the 
fact  that  an  increase  of  ten  cents  per  day  took  effect  on  the 
first  of  the  current  calendar  year  in  the  rental  of  foreign 
freight  cars.  This  advance,  amounting  to  about  29  per  cent 
over  the  present  rental,  would  have  increased  the  company's 
debit  balance  on  car  hire  account  for  the  1912  fiscal  year  by 
$305,000.  The  added  charge  which  it  will  incur  this  year  is 
one  reason  for  the  company's  threatened  dividend  stoppage, 
[FIFTY-EIGHT] 


and  it  is  a  highly  important  reason  also  for  the  desire  to  in- 
crease heavily  the  number  of  the  road's  own  freight  cars,  as 
the  New  Haven  has  already  done. 

Difficulties  of  Equipment  Trust  Plan 

There  are  certain  criticisms  of  the  policy,  however,  In 
order  to  avoid  an  unfavorable  effect  upon  the  income  account, 
to  say  nothing  of  showing  more  earned  for  dividends,  the 
company  must  be  sure  that  the  equipment  purchased  will  give 
sufficient  return,  through  direct  earnings  and  saving  of  car 
rentals,  to  meet  not  only  the  interest  upon  the  certificates 
but  also  a  large  annual  charge  for  serial  retirement.  This 
seems  a  difficult  proposition,  and  especially  considering  the 
possibility  at  any  time  of  a  very  severe  reversal  in  business 
conditions,  as  a  result  of  which  some  of  the  equipment  would 
be  out  of  employment.  And  while  no  one  anticipates  trouble 
for  the  Boston  &  Maine  —  enough  has  been  said  on  that  sub- 
ject elsewhere  —  it  must  be  remembered  that  in  the  event  of 
any  financial  embarrassment  a  company  is  usually  obliged 
to  pay  charges  on  its  equipment  certificates  even  ahead  of 
bond  interest;  else  the  equipment  is  lost. 

It  is  not  intended  to  argue  that  the  company  cannot  make 
some  use  of  equipment  certificates,  to  a  reasonable  amount.  But 
it  is  believed  that  this  device  should  be  used  with  great  cau- 
tion- Further,  it  would  provide  for  only  one  part  of  the 
company's  needs.  All  things  considered,  there  appears  noth- 
ing in  the  proposal  to  suggest  any  qualification  of  the  above 
argument  in  favor  of  the  old-fashioned  methods  of  financing 
by  stock  issues,  supplemented  by  bond  issues,  and  such  leg- 
islation as  is  necessary  to  make  this  possible. 

Whatever  financing  may  be  permitted  by  the  State, 
whether  by  way  of  such  concessions  as  proposed  or  other- 
wise, it  will  probably  be  considered  good  policy  to  restrict 
the  company  in  the  use  of  the  funds  to  actual  improvements, 
putting  a  stop  to  purchases  of  leased  line  stocks.  Some  of 
these  purchases  seem  thus  far  to  have  proved  of  doubtful 
expediency,  and  there  is  no  call  for  their  continuance.  It  may 
seem  best  also  to  disapprove  further  extensions  of  the  com- 
pany's lines,  especially  for  strategic  purposes  in  relations  with 
other  railroads.  And  as  above  urged  at  length,  the  public 

[FIFTY-NINE] 


should  go  very  slowly  in  demanding  or  permitting  any  bur- 
densome expenditures  at  Boston. 

All  suggestions  of  a  State  loan  should  be  disregarded. 
The  State  can  accomplish  the  most  good  by  enabling  the 
company  to  help  itself. 


THE   TIME   FOR   A   LIBERAL   VIEW 

The  railway  problem  in  New  England  is  complicated  and 
difficult.  But  it  is  safe  to  say  that  to  no  one  is  it  quite  so 
complicated  or  quite  so  difficult  as  to  the  railroad  men 
charged  with  the  responsibility  of  providing  adequate  service 
for  this  important  territory,  and  of  keeping  the  properties 
with  their  large  capitalization  solvent  and  dividend-paying. 
The  public  has  demanded,  justly  enough  as  population  and 
industry  has  increased  and  the  standards  of  good  railroading 
have  been  raised,  more  and  more  in  the  way  of  service  and 
facilities.  And  the  demand,  we  may  add,  is  as  eager  and  per- 
sistent as  is  the  disposition  in  some  quarters  to  condemn  and 
oppose  the  railway  management  on  any  and  all  grounds,  re- 
gardless of  the  effect  of  such  attitude  upon  the  credit  and 
efficiency  of  the  companies.  All  of  this  comes  back  upon  the 
stockholders. 

It  should  be  realized,  as  was  pointed  out  early  in  this 
discussion,  that  these  thousands  of  New  England  stockholders 
are  not  the  arrogant  beneficiaries  of  high  finance.  Many  of 
them  are  not  wealthy.  Their  investments  have  been  made  in 
good  faith  and  actuated  by  confidence  in  the  economic  great- 
ness of  New  England,  in  the  ability  and  integrity  of  the  rail- 
way managements,  and,  not  least,  in  the  intention  of  the  laws, 
the  courts,  and  public  opinion  to  deal  fairly  and  equitably  with 
honest  investment  interests- 

That  economic  conditions  have  worked  against  them  by 
imposing  upon  their  properties  demands  of  a  severity  greater 
than  anticipated  or  planned  for  in  the  earlier  days  of  pros- 
perity, and  that  the  shareholders'  chosen  officials  have  made 
mistakes,  is  not  the  fault  of  the  public.  But  legislation 
adding  needlessly  to  the  burdens  thus  imposed,  or  thought- 
less interference  with  the  most  practical  and  economical  work- 
ing out  of  our  railway  problem,  would  be  plainly  the  fault 

[SIXTY] 


of  the  public  and  would  reflect  seriously  upon  the  public  good 
faith  toward  those  who  have  placed  capital,  under  legislative 
charter,  in  our  public  utilities.  And  not  only  would  such  a 
policy  violate  justice  and  good  faith,  but  in  obstructing  the 
needed  financing  of  railway  development  it  would  also  violate 
common  sense. 


[SIXTY-ONE} 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $I.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


, 

29Nov'6!Wc 

' 

1      REC'D  LD 

' 

LD  21-100m-7,'40  (6936s) 

UNIVERSITY  OF  CALIFORNIA  LIBRARY 


